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Tax filing for charity 101

How does tax filing for charity work exactly? The tax deduction for charitable donations was established back in 1917, just four years after the federal income tax was introduced as well. While there have been some changes which have been made over the years, in its basic form this provision would allow taxpayers to then deduct donations to nonprofits and charities from their taxable income. So if a taxpayer earns $50,000 for example and gives $2,000 to charity, she would only have to pay taxes on $48,000. The rationale behind this provision was initially that the taxpayer who gives away $2,000 does not have that money available to spend on herself, so it should not be counted as part of her income anymore. Nowadays, the deduction is more commonly thought of as an incentive which is dangled before taxpayers to coax them into donating more money to charity. By allowing taxpayers to be able to deduct charitable donations from their taxable income, the government would essentially agree to pay for a portion of the donation.

While all of this sounds great in principle and soft to the ears, there is actually a big catch which all should know about. In principle, not all taxpayers benefit from the charitable deduction. Initially, the income tax would only be applied to a rather small number of wealthy Americans, but during World War II it was expanded to affect roughly 75% of the population in comparison to now. Instead of having all of these tax filers list their deductions individually around $42 for prescription medicine here, a $100 donation to a museum there, the IRS introduced the “standard deduction” in the year 1944. The standard deduction lets all filers lower their taxable income but only by a fixed amount. For the 2012 tax year that amount would be around $5,950 for single taxpayers and $11,900 for couples or those with spouses. That means that you only have to keep track of your deductions and itemize them on your income tax return if they exceed $5,950 or $11,900 if you are then married. This would save a lot of taxpayers and not to mention the IRS as well a huge headache, but it also means that the 70% of filers who take the standard deduction do not get to write off their charitable donations.

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