Understanding Taxes and Charity

Understanding Taxes and Charity

For many people, the terms charity and deduction are practically synonymous. But if you’re giving to a charity to save money, you’re giving for the wrong reason. You haven’t saved money, you’ve just basically un-earned it from a tax perspective.

Whatever your reasons for giving to charity, saving money on your tax deductions should not be one of them. Give if you're are so inclined to help the cause or to give back to the community, but don't rely on Uncle Sam to help you save any money. Sound like the opposite of what you've heard in the past? Well, let's take a look at taxes and charity...via sneakers.

Saving vs. Not Saving

I recently did some sneaker shopping. I needed a new pair of trail running shoes, and I’m really picky about my running shoes. I finally found a pair on sale that was 85% off. I saved that 85%, because I would have spent more had I not found the pair on sale.

In comparison, if you were to donate 5% of your income to charity, you would not have saved that money. Yes, you get to write that figure off of your taxes, but you still had to spend the money. There actually was no savings.

Now, you can argue that had you not put that money towards a charity, you would have had to give it to the government instead. Well, my friend, that’s called choosing where you allocate your money, not saving. The money is gone, either way; the only difference is that you’re happier about where it went.

Un-Earning Your Dollars

Sure, if you would have spent your $1,000 dollars (or whatever it was that you contributed) on a vacation, you couldn’t have written it off. So all of your income would have still been put through the tax ringer. You would have had to pay taxes on the income that was used to fund your vacation.

Had you put that towards a charity, you’d still be out the money, but the income used wouldn’t have been taxed. So, on tax day, it seems like you saved money. However, in reality, you still spent the money. Again, it just went to a charity rather than the government.

Charitable giving is always a good thing to do. Personally, I encourage everyone to do so. I’m not into the whole "if your hand is open to giving, it’s also open to receiving" idea, but I do think it’s important to give back if you have the ability to do so. Just understand why you are giving: to be charitable to others, not to ask the government for savings.

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MoneyCone's picture

MoneyCone wrote:

Tue, 06/21/2011 - 20:50 Comment #: 1

Very nice coverage! Also don't forget you don't even get to deduct your charity contribution if you opt for standard deduction.

femmefrugality's picture

femmefrugality wrote:

Sat, 07/02/2011 - 17:55 Comment #: 2

Love this article! And I totally agree, MoneyCone. This upcoming tax year the standard deduction is predicted to be $3700 for an individual (double if filing jointly.) I don't know about you, but I certainly don't have that much money to be giving away. Especially if I would get the $3700 deduction for free anyways. Making the tax deduction for most people null and void. (With the exception of people who may be itemizing for medical expenses or personal business costs, etc.) I'm all about giving. But I'm also all about being aware that giving should be from the heart and likely will not get you tax breaks.

Jessica Schmeidler's picture

Jessica Schmeidler wrote:

Sun, 07/03/2011 - 07:23 Comment #: 3

Thank you for the additional information, MoneyCone! :) I agree with you, and I also agree with femmefrugality that giving should be from the heart.