An Economist Explains – What’s The Charitable Deduction?
Patrick Rooney, IUPUI
The charitable deduction is a dollar-for-dollar reduction in taxable income that lowers what someone owes the Internal Revenue Service. Only donations to tax-exempt charities count.
This giving incentive is available only for the 10% of American taxpayers who itemize their tax returns. Taxpayers who itemize can sum up certain expenses, such as the interest they pay to for a home mortgage, and then subtract that money from their taxable income.
Here’s a hypothetical example: Clara Doe, a veterinarian, pays a 32% marginal tax rate on her US$200,000 income as a single filer. Because she itemizes, her $100 annual donation to a local food pantry costs her $68 after taxes. Uncle Sam essentially pays the rest by giving her a tax break.
Most Americans instead use the stan...