Many people make donations to charity but not all of them can deduct the charitable contributions from their tax return. Current tax law allows taxpayers a standard deduction that takes into consideration living expenses, income taxes, and charitable contributions and comes up with a number based on filing status. For 2010, the standard deduction for singles and married filing separate was $5700, for head of household $8400, and for married filing joint $11,400. There are higher standard deductions for taxpayers over 65 or blind.
If any combination of charitable contributions, income and property taxes, mortgage interest and medical expenses that exceed 7.5% of your adjusted gross income, exceed the standard deduction, then it would benefit the taxpayer to itemize deductions. Lost yet? Here is an example.
Single Tommy has state taxes withheld from his paycheck. His mortgage interest of $8000 a year and state withholding of $2500 a year equals $10,500 which is more than his standard deduction of $5700.Now Tommy can add in his $900 he gave to his church and $1500 in property taxes, and is able to itemize a deduction of $12,900 instead of $5700. This reduces his tax liability dramatically.
Single Jane on the other hand, volunteers at the local shelter, donated a car to the Salvation Army, and donates clothing and household items quarterly but is unable to itemize any mortgage deductions because she rents an apartment. Her charitable contributions plus her state withholding from her check add up to $5500. Jane will be better off with the standard deduction of $5700.
This example was simplified just to show the difference between two single people’s options. Although income was not mentioned in the example, it should be noted that itemizing is increasingly beneficial to higher income taxpayers.
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