Lower Taxable Income

• When people consider giving to charities, they usually do so primarily to help a righteous cause but the fact that charitable giving is tax deductible presents an extra incentive to get people to commit their funds. Before doing anything based on a tax deduction, you should understand exactly what type of deduction you will receive and how much money you stand to save. Some people hear tax deduction and think that any money they give away will essentially be recouped by paying less taxes. This is not true. Tax deductions shrink the pool of taxable income you owe, but you will never regain 100 percent of the money of a donation through a deduction.
  
  

Below the Line

• An important factor when considering weather to donate to a charity is that charitable giving is a below the line tax deduction. Above the line deductions are always subtracted from your gross income when determining your taxable income, but below the line deductions are not necessarily subtracted. Everyone is entitled to a standard below the line deduction based upon filing status, but this standard deduction is foregone if the filer decides to use an itemized deduction instead, which includes all charitable contributions as well as many other deductions.
  
  

Potential Tax Savings

• If your itemized deduction including charitable contributions is smaller than the standard deduction, you will not save any money with your charitable contributions. In general, those earning lower total income will benefit less from charitable contributions because they are given a standard deduction that amounts to a larger proportion of their total income. Additionally, those in higher tax brackets save more from their charitable contributions, because they are avoiding paying taxes at a higher rate than those who make less money. A rich person who pays 50 percent tax on their income, essentially saves half of any charitable contribution due to tax deduction. A person who pays low taxes in the first place will benefit little from charitable contributions.