I was told that you have to reach a certain percent of donation from your annual income before you can claim it as tax deduction. Others tells me that they claim all their deduction no matter how much. I’m confused, please help!
Thanks, Bernadette
Hi Bernadette:
There are rules that place limits on the deductibility of charitable contributions. Two of the more important rules are as follows:
Rule 1: you must itemize deductions on Schedule A in order to deduct charitable contributions. If you don’t have enough deductions to itemize (and therefore you take the standard deduction), then you don’t get to deduct your charitable contributions at all.
Rule 2: your charitable contributions cannot exceed a certain percentage of your income. Generally, you cannot deduct more than 50% of your income as a charitable contribution in a single year. You can give all you want — in theory, you can give away all your income; but if your total contributions exceed 50% of your income, then you can only deduct the 50% amount; the non-deductible amount gets carried over to the next year’s tax return.
So, what you say is very feasible. Example: Three people contribute $5,000 to charity in a single year. Person #1 gets a full deduction on Schedule A. Person #2 gets no deduction because she doesn’t itemize deductions. Person #3 gets a partial deduction because her income was so low that the contribution amount exceeded 50% of her income.
Moral of the story: when people talk about their tax returns, or what they did or did not deduct, be careful not to take one person’s situation and assume that what one person does applies to everyone. Our tax system is way too complicated for that to be true.
So when you say you’re confused, you should be!
Our tax system is confusing, complex, convuluted, and chaotic. And it will get much worse before it ever gets better — Congress and the President are debating another round of tax law changes, even as I write this. (End of editorial comment.)
Hope that helps.
Sincerely,
Wayne
Wayne M. Davies is author of 3 tax-slashing
eBooks for small business owners and the self-employed. For a
free copy of Wayne’s 25-page report, “How To Instantly Double
Your Deductions” visit http://www.YouSaveOnTaxes.com
