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Ask HN: How to quantify tax deduction for donations?
17 points by ecesena on Feb 19, 2017 | hide | past | favorite | 6 comments
I'm working on a project that would integrate really well with donating money to some non-profits.

I know that donations = tax deductions, I found tons of info on how to do that and caveats, but I'm not able to find quantitative examples. Like if my revenue is $R, I'd have to pay $T in taxes. If I donate $D, then taxes will only be $X.

I'll certainly ask an accountant for advise, but was wondering if anyone has experience and would like to share some numbers.

I'm mostly interested in the case of an LLC in CA, but any other experience is welcome, as I'm sure others here would benefit.



"For example, if you are in the 33% tax bracket, the actual cost of a $100 donation is only $67 ($100 less the $33 tax savings). As your income tax bracket increases, the real cost of your charitable gift decreases, making contributions more attractive for those in higher brackets. The actual cost to a person in the lowest bracket, 15%, for a $100 contribution is $85. For a person in the highest bracket, 35%, the actual cost is only $65. Not only can the wealthy afford to give more, but they receive a larger reward for giving."


Note that the person in the lowest tax bracket is likely not itemizing their deductions, so their cost is more like 100%.


Just in case you're not talking about cash donations directly to the recipient, but talking about donated labor, labor is not deductible as a donation.

Except for the amount that the donating entity paid money to the individual employees providing labor to the charity. Is the LLC taxed as a "C" corporation? Then that's the entity claiming the deduction for paying wages. Did the LLC elect to be taxed as a proprietorship or partnership? Then you'll have to ask your accountant. Possibly labor is not deductible, if the owner is providing the labor.

Anyhow, for labor, no pay, no deduction. This prevents individuals claiming their hourly rate is $10,000 an hour, and deducting the "donation" of their time.

For your personal tax return, you need to have enough deductions on Schedule A [0] to cross the threshold of more than your "standard deduction", which depends on your marital and family status, to have the cash donations, or in-kind material donation be particularly deducted.

If you own a house, your interest on the mortgage will put you over that "standard deduction" threshold. See line 40 of Form 1040 [1], and the instructions [2] at page 39, for a start.

  [0] https://www.irs.gov/pub/irs-pdf/f1040sa.pdf 
  [1] https://www.irs.gov/pub/irs-pdf/f1040.pdf
  [2] https://www.irs.gov/pub/irs-pdf/i1040gi.pdf


It is a simple equation -- the amount of your donations is subtracted from your taxable income. That's it.

However, all the rest of the tax code then applies -- deductions, brackets, etc. So putting it into context isn't quite as simple. What if you were 50 dollars above the start of a new tax bracket. Then the first 50 dollars of your donations will have a larger impact than the rest of it. What if you were just shy of having enough for itemizing deductions to make sense, but donating 30 more dollars would make that difference? There are a lot of thresholds to figure out and deal with, which are more than anyone but an accountant could really step you through.

I'm sure it could be done -- plenty of tax software companies do it. But a quick answer in a HN comment probably can't break it down for you... you'll have to do the research and analysis.


Does something like this do the trick?

https://www.charitynavigator.org/index.cfm?bay=content.view&...

--> Like if my revenue is $R, I'd have to pay $T in taxes

That part is harder to answer, but not necessarily as important as the latter. What you can more easily find it "if I donate $100, what do I get back?"


it's going to depend on your tax bracket, but deductions just lower the amount you are taxed on (assuming you itemize, if you just take the standard deduction they don't help at all). If your tax rate were 25% and you itemize, then a $100 donation should knock about 25 off your bill if I understand correctly.




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