Q: I wanted to help people in Texas after the hurricane, so I gave some money to the Houston Food Bank. Do I get a tax benefit?

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Q: I wanted to help people in Texas after the hurricane, so I gave some money to the Houston Food Bank. Do I get a tax benefit?

A: If you donate to a qualified organization and you itemize your federal income taxes, you can deduct the donation to lower your taxable income. This deduction has been around since 1917 (income taxes were introduced in 1913), but currently, because only ~1/3 of people itemize (~2/3rds take the "standard deduction"), most people who give to charity receive no tax benefit for doing so. With the deduction, the federal government effectively subsidizes charitable giving, as that "shielded income" would otherwise be taxable. This is why the Joint Committee on Taxation called this deduction a "tax expenditure" in a 2010 report. The chart above, from a CBO study, shows this by income distribution. The dark blue bars show the percent of people in each income bucket (a lot of people earn under $50k, not so many earn over $500k), the proportion of charitable giving from each income bucket (mid-blue bars), and the associated tax benefit (light blue bars). While it is not surprising that giving from 6-figure earners comprises a large proportion of both donations and tax benefits, their relative tax benefit is greater (the light blue bars are taller than the mid-blue bars). This could be changed, but Republicans are not likely to do so (although some of their other tax proposals might have the effect of decreasing charitable giving).

- originally published in the 9/4/2017 newsletter

Stephanie Lee