Charitable deduction question

Nick - are you already itemizing? You see, if you are taking the standard deduction, you save nothing by making a donation, they are part of the Schedule A itemized deductions. Assuming you own a house and/or have high state taxes, and are itemizing, it can be $280 or $330. AGI is not 'taxable income', that's the line you need to go to to have a real answer. If MFJ (married filing joint) in 2008 the 33% bracket starts at $200,300 so you'd be in the 28% bracket. If single, the 33% bracket starts at $164,550.

Look at

see the tax rate schedules. You can see exactly where I get these numbers from.

Joe

Just to be clear, we are only talking about 2008 taxes and beyond, since any contributions you did or did not make in 2007 are history, and you either have the required documentation or you don't.

To add to Joe's reply, limitations on itemized deductions and/or AMT can complicate the result a little. The easiest way to get an answer is to use software, make a copy of your return, and put in "what if" numbers to see how the result changes.

-Mark Bole

What is filing status? What are you itemized deductions? What are your mortgage and investment interest? It could range from 0% to 33%.

It's quite possible he'll be in AMT (as well as the itemized deduction phaseout), in which case the deduction would be $0 to $50. I calculated $50 as 33% deduction saving $330, followed by AMT of 28% or

280, for net savings of 330-280P.

I don't believe charitable deductions are impacted by AMT. i.e. I just pulled up TurboTax, added $1000 to a charitable deduction, and saw tax due drop by my marginal rate. Yes, I am otherwise impacted by AMT, as my property tax has no impact on the bottom line. Joe

[effect of $1000 charitable deduction]

If he's a little or a lot into AMT, it's worth $280. If he's in between, $350 (I think the phaseout is 25%).

Seth

You're right. I initially thought that charitable contributions are not allowed under AMT, but they are (as no line on that form asks you to add it back), so I stand corrected. So the tax savings will be as you say above.

Furthermore, I plugged numbers into my tax program and then I saw line

29 of form 6251 (the AMT exemption). Because the AMT income (line 28) is less by $1000, the AMT exemption (line 29) is phased out less and will be greater, meaning that less of your income is subject to AMT. In my scenario (single filer, 200k income, CA tax 17k, no donations) line28 0000, line29"475. With a 1k donation, line289000, line29"725. Bottom line is that without the donation net tax is 46207; with the donation it is 45857, and net savings is 350 or 35%. (Note that this person (with 17k of CA taxes) had itemized deduction phaseout.) Yet the person's tax bracket is 33%.

There's a relationship between the nominal tax bracket and the effective tax bracket.

If there's a phaseout in effect, effective = nominal / (1-phaseout). For most people towards the bottom of the AMT range, the effective marginal rate is 35%.

Seth