What "tax deductible" means for charity donations

[zebra363]

I'm not sure whether this is something everybody knows and the topic seems timely. The numerical examples are specific to the Australian tax system, but the general principle is pretty common.

Because charitable donations are tax deductible, they cost you less in terms of after-tax dollars than normal expenditure.

Comments

[shrydar]

Thanks for ensuring people are aware of this.

I really like the UK system, where in most instances you can declare to the charity that you're a UK taxpayer, and instead of you claiming the donation as a deduction, the charity gets to claim an extra 25% from Inland Revenue.

Less paperwork, and encourages larger donations (people don't have to factor in money they're going to get back later in working out what they can afford this week).

[kremmen]

In plenty of instances, the Australian system encourages larger donations. Taxpayer may wish to have deductions in order to avoid various means-tested hurdles.

Let's say that you don't have private health cover and get towards the end of the financial year, having a taxable income of $78000. You want a $1000 deduction so that you will not pay the 1% Medicare surcharge. Donate $1000 in that circumstance to a charity and you can reduce your income tax by $1080. I'll bet plenty of charities get significant end-of-June donations that way which they would not have otherwise received.

[shrydar]

Ah, fair point. I keep forgetting we have a ridiculous tax system that isn't even a continuous function.

[zebra363]

Yes, if you're near any benefit/surcharge threshold it would definitely be worth doing the sums in June! I wonder what percentage of people do.

Personally I just like thinking, "The donation isn't really costing me as much as it sounds" and I probably donate more as a result.

[zebra363]

I didn't know what shrydar said above about the UK system for donations.

Ignore and it will go away - it's at a discount to the market price.