Anyone else excited about tax season?

charity giving goals tax benefit Mar 23, 2022

 Am I the only one here excited about tax season?

 Tax time can be incredibly satisfying because it is the time of year I get to see what I’ve accomplished with my giving goals.  I see what I have earned, how my charitable contributions have added up, and what kind of tax benefit I have achieved through giving.  It’s also the time of year I evaluate the impact made by the organizations I have supported, which is so profoundly meaningful and inspiring. 

 In this post I’m going to go over the very basics of the tax benefits of charitable giving. A lot of us know that charitable contributions can be tax deductible and financially beneficial for us, but don’t understand how it actually works.  I'll be defining some jargon, and in the end give an example to clearly walk through it all.

What are deductions?
A tax deduction lowers your taxable income and so reduces the amount of tax you need to pay on your income. You subtract the amount of the tax deduction from your AGI – which is your adjusted gross income - making your taxable income lower. The lower your taxable income, the lower your tax bill

What is your AGI?

Adjusted gross income is your gross income — which includes wages, dividends, capital gains, business income, and other any income — minus certain payments you’ve made during the year, such as student loan interest, or contributions to retirement accounts or health savings account.

 How are those adjustments different from tax deductions?

Deductions are a different, specific group of payments that are designated by the IRS as allowable to deduct from your AGI.  These include things like mortgage interest, property taxes, medical expenses and what we are talking about here, which is charitable contributions.

 What about standard deductions?  What do I need to know about those?

Standard deductions can be taken against your AGI without needing to itemize, and the amount depends on your filing status.  If your itemized deductions all together are greater than the standard deduction, then it make sense to itemize.  I have listed below what the 2022 standard deductions are so you can see how much you would need in deductions to make sense to itemize.

 

Filing status

 

2022 tax year

Single

 

$12,950

Married, filing jointly

 

$25,900

Married, filing separately

 

$12,950

Head of household

 

$19,400

 

What does that actually mean? 

Ok, so that was a lot of jargon, let’s look at some totally made up numbers as an example which should make it clear.

 Let’s say you are a homeowner and your AGI is $200,000/year, your tax rate is 35%, and you have enough deductions to itemize with your mortgage interests and property taxes.  The example below shows the potential additional benefit of donating a total of $10,000/year to a charitable organization.  (I am not including the made up deductions like mortgage interest and property tax, just the charitable, to highlight that portion of your deductions.) So by lowering your taxable income by $10,000 to charitable organizations, you save $3,500.

What I want to point out here is that you are still giving away money – but to you it only feels like you are giving $6,500, and the charitable organization gets $10,000. To me, that’s a win for making impact with the causes you care about most in the world.   

 

 

AGI

Deduction

AGI after deduction

Tax amount

 

Without deduction

$200,000

$0

$200,000

$70,000

 

With deduction

$200,000

$10,000

$190,000

$66,500

 
     

Difference – amt saved

$3,500

 

 

 If you would like to get excited about tax time next year with me and are interested in learning more, let’s connect!  You can find me on FB, IG and LinkedIn, and if you are a physician, you can join the private physician FB group. You can also check out my course on giving, which can step you through making your own giving plan. 

 

Together we can do so much good!

 

Reminders:

  1. Always make sure that when you are itemizing your deductions you have proper documentation.
  2. I am not a CPA or financial advisor. Tax rules and laws are constantly changing, please consult your CPA for current rules.  *Clinical correlation is advised :).*

 

https://www.irs.gov/charities-non-profits/charitable-contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

You can be the change you want to see in the world through effective, efficient, and impactful philanthropy. Check out my course, The Physician Philanthropist, for a comprehensive education on and strategy for maximizing the impact of your giving both for you and your causes

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