Surprising Stats: The Impact of Charitable Giving on Your Taxes

Are you looking forward to getting charitable giving write-offs on your tax return? It might be harder than you think. Ever since the IRS rules changed with the Tax Cuts and Jobs Act of 2017, it's become more difficult for most people to get a tax break for charitable donations.

Don't assume that every check you write to charity, or every box of unused household items that you drop off at Goodwill, is going to help you save money on taxes. The truth is more complicated.

Let's look at a few surprising stats that show the real impact of tax deductible charitable donations -- and who can qualify to receive them.

Stat No. 1: 90% of people take the standard deduction

Many people might not realize this, but the IRS only allows tax deductions for charitable giving if you itemize deductions on your tax return. And because the standard deduction has increased so much in the past few years, it's harder for most people to itemize. Most people are better off taking the standard deduction. The best tax software can help you decide which choice is right for you, with easy questionnaires.

About 90% of U.S. taxpayers use the standard deduction, according to IRS data. This can be a good thing in some ways. Just taking the standard deduction can help you file taxes more quickly, and for most people it's the best way to reduce your taxable income. But if you take the standard deduction, your charitable donations don't count for tax purposes. Donating to nonprofits is still a good, generous thing to do, but the IRS won't give you any extra deductions.

Stat No. 2: $13,851 is the minimum amount you need to itemize deductions

If you're determined to get those sweet tax deductions for charitable giving, you need to make sure your itemized deductions add up to more than your standard deduction amount. For a single person in 2023, the standard deduction is $13,850. For married couples filing jointly, it's even higher: $27,700.

If you want to reduce your taxes with charitable giving, you need to make sure that all of your itemized deductions add up to the largest possible total. Here are the types of expenses that are included in itemized deductions:

• State and local income taxes (SALT) and real estate taxes -- but you can only deduct up to $10,000 of these taxes per household
• State and local sales taxes -- you can choose to deduct these taxes instead of your state and local income taxes, but you can't deduct both
• Personal property taxes
• Mortgage interest
• Disaster losses from a federally declared disaster
• Some medical and dental expenses -- but only the costs that are greater than 7.5% of your adjusted gross income (AGI)
• Gifts to charities

If your other itemized deductions add up to a number that's pretty close to your standard deduction amount, you can boost your tax refund by giving a little extra money to charity. Let's look at two examples of how taxpayers can use charitable giving for tax planning:

Example No. 1: Frank, single person in California

Frank is a single professional in California with an income of $150,000 per year. Frank rents an apartment and doesn't pay property taxes or mortgage interest. Since he's a high earner in California, a state with relatively high income taxes, Frank is paying more than $10,000 per year in state and local income taxes. But because of the SALT deduction cap, Frank can only deduct $10,000 of that amount.

If Frank donates no money to charity, he'll only have $10,000 of itemizable deductions for his federal tax return, which means he should take the standard deduction ($13,850) instead. But if Frank wants to reduce his federal tax bill, he can write a check to charity for $3,851 (or more) to get over the top of that standard deduction amount.

Example No. 2: Jaime and Rebecca, married couple filing jointly in Florida

Jaime and Rebecca live in Florida and are homeowners. Florida has no state income tax, but this married couple is paying $8,000 per year in mortgage interest and $7,000 per year in local real estate taxes on their home. Rebecca has also been going through treatment for cancer, which has caused them to incur an extra $7,000 of out-of-pocket medical expenses (beyond 7.5% of their AGI). Without any charitable donations, Jaime and Rebecca would have $22,000 of itemizable deductions -- which leaves them better off taking the standard deduction ($27,700) instead.

But if they give donations to charity in the amount of $5,701 (or higher), Jaime and Rebecca can get charitable giving write-offs, and start to reduce their overall tax bill beyond the standard deduction.

Stat No. 3: 15% of all charitable tax deductions went to people earning less than $100,000

The biggest tax breaks for charitable giving go to people who have the most money. That's because people with higher incomes pay higher marginal tax rates and are more likely to itemize deductions. According to stats from the Tax Foundation, in 2020, taxpayers who earned less than $100,000 claimed 15% of all tax deductions for charitable donations. Meanwhile, 45% of these tax breaks went to people earning $1 million or more.

Bottom line: Even if you're not a wealthy person, even if you're far from the top marginal tax bracket, that doesn't mean there's no hope of getting a tax break from charitable donations. But plan ahead. Add up your itemizable deductions throughout the year, and be prepared to make one big sizable donation at the end of the year to put you over the top.