Your Charitable Contributions are (probably) not Tax-deductible

For individuals, the basic formula for calculating taxable income is:

Income - standard deduction (or itemized deductions) = taxable income.

The 2019 standard deduction is $12,200 for individuals and $24,400 for married couples. The standard deduction is available to everyone, regardless of the expenses you pay during the year. There is a long list of itemized deductions available to taxpayers, but the vast majority of itemized deductions fall into 3 categories: taxes paid, interest paid, and gifts to charity.

If the sum of the expenses you paid during the year that qualify as itemized deductions is greater than your standard deduction, you plug that figure in the calculation above. If not, you use the standard deduction.

A bit more on the 3 main categories of itemized deductions. Taxes paid represents state and local income taxes and/or real estate taxes paid. This category is limited to $10,000 (for both individuals and couples). Interest paid represents interest paid on the mortgage for your primary or second residence. The deductible amount is limited to interest paid on up to $750,000 of principal. Gifts to charity represents cash or property donations to qualified charitable organizations.

To illustrate, let's assume couple A has the following itemized deductions: $10,000 in taxes paid, $10,000 in interest paid and $5,000 in gifts to charity for a total of $25,000 itemized deductions. This amount is greater than the $24,400 standard deduction, so couple A will claim $25,000 in itemized deductions on their tax return.

Compare this to couple B who has $0 in taxes paid, $0 in interest paid and $0 in gifts to charity for a total of $0 itemized deductions. This amount is less than the $24,400 standard deduction, so couple B will claim the standard deduction of $24,400 on their tax return.

Note that Couple A is only deducting $600 of their $25,000 in total itemized deductions, since the standard deduction of $24,400 is available to all taxpayers regardless of expenses paid. Put another way, all else equal, the couple B could have donated $23,399 to charity and received $0 tax benefit from the donation.

Here's the takeaway. For the vast majority of people, charitable contributions, property taxes and mortgage interest are not tax deductible. That isn't to say you shouldn't donate to charity or have a mortgage. Just don't use tax savings as a reason for doing so.