You may have heard people talking about lowering their tax bills by making charitable contributions and you definitely want in on that action. So how does it work?
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To understand how the deductions work, you need to know how taxes work. Of course, it's endlessly complicated and there are a million variables to consider, but for now let's just look at this super simple example:
A single person making the average salary of an earner with bachelor's degree makes about $43,000 each year. According to the IRS, they would pay $5,183.75 plus 25% of the amount over $37,650 -- a total of $6,520.
In reality, not all of your income is taxed since the IRS deductions a certain amount, called the standard deduction, from a person's salary before calculating taxes. The government lets you earn a little bit for free. How nice!
When you make a charitable contribution, that amount is deducted from your salary before taxes are calculated. But you need to have donated an amount greater than the standard deduction, which for a single filer in 2016 is $6,300.
So let's say that this person made a monthly donation to Planned Parenthood for $50, tithed 10% of their pre-tax salary to their church, and donated 3 bags of old clothes and household items, each valued at $400, throughout the year. That all adds up to be $6,100, less than the standard deduction. So while all of those donations are very generous, they do nothing to their tax bill. But! What if this person realizes this and decides to send $2,500 of clean drinking water to the residents Flint, Michigan.
By doing that, their taxable income is now $34,400 and they will owe $5,950 in taxes. Not a huge amount, sure, but they've done a good thing and benefitted a little bit for it. Spend some time on the IRS Tax Bracket page and play around with the numbers.
Other deductions you can take: Student loan interest, mortgage interest, some health care costs, and so much more. Full list here.