Twenty Something Sense

Maybe. Often times companies seeking donations will market the idea that the donation is tax refundable or that you can “write it off.” But, what does this mean?

The maybe is due to a tax component called standard deduction. A standard deduction is a dollar amount that reduces the amount of taxable income you have. For 2008 – if you are applying as single, this amount is: $5,450. See here for other standard deductions. On the flip-side if your itemized deductions (“write-offs”) are larger than your standard deductions, you can elect to use this number.

Itemized deductions include things like being a student, paying mortgage interest, having kids, etc. Often times when you are single you will use the standard deduction as your itemized deductions (including those donations) are not more than your standard deduction ($5,540).

So, when does it make sense to focus on donations as a vehicle to reduce your taxable income? Only when you have large itemized deductions or you are making a significant amount of money where you can benefit from this. The following article says it best as it highlights the when and when not. Remember, you are always donating something out of your pocket, but due to tax law, you may be able to recover 50% of your donation if you are in a very high income tax bracket.

**Please note that I am not at all against donations and in fact I fully support donations to any cause that you feel is worthwhile. Donating money is a great thing. However, I wanted to use this post to clarify the “write-off” marketing that is often leveraged by those asking for donations.