Social Question

JLeslie's avatar

Is it true that if you can't itemize on your taxes you can't write off charitable contributions?

Asked by JLeslie (55783points) February 8th, 2010

I have itemized for years now, so I have not thought about this in a long time. A relative of mine was pointing out that her donation to Haiti can’t be written off because she doesn’t itemize anymore having her house paid off and low property taxes, and she does not give thousands away.

So, this made me realize that lower and middle class who don’t own property probably can’t get any tax benefit from giving to charity.

I glanced over the tax forms, and it seems this is correct, but wanted to ask the collective.

Seems unfair if this is true. Although, I do admit I would want to discourage people from giving money away they really cannot afford to give.

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38 Answers

Snarp's avatar

Yes, this is true.

kevbo's avatar

Everyone has the option to take the standard deduction or to itemize their deductions. The standard deduction is something like $7,000 pp (don’t quote me on that). So as fair as anything is to do with taxes, I suppose there are pros and cons either way. If your relative itemizes in a given tax year, she might “lose” because her itemized deductions are less than the standard deduction. Essentially, the standard deduction accounts for her Haiti donation.

feel free to correct me, anyone

marinelife's avatar

Standard Deductions:

Single: $5,700
Head of Household: $8,350
Married Filing Joint: $11,400
Married Filing Separately: $5,700

Source

Snarp's avatar

What’s really not fair is the mortgage interest tax deduction, which is essentially a giant government handout to the upper middle class and wealthy, though we don’t think of it that way. It also makes other deductions, like that for charitable contributions, more lucrative. Then again, all tax deductions that are not tax credits are unfair in a similar way. Only those who make enough money get the benefit.

JLeslie's avatar

Just to clarify my relative is not complaining, and had not been expecting any sort of a deduction. She is retired, house is paid, and gets a great government pension, so no worries. Just when we discussed it (I was reminding her to put her donation to Haiti on her 2009 taxes, and that is when she said that it doesn’t matter she can’t get a deduction anyway) I was surprised, and had not thought about it before.

JLeslie's avatar

@Snarp I think it is unfair also, but I guess they give the tax deduction on mortgage insurance to encourage people to buy property. I kind of remember when I was a teen you could deduct the interest on car loans also?

But, also, I only recently learned that if you are poor you get tax money given to you. You don’t pay taxes and you get money from the federal government. I am not talking about welfare. WTF?

robmandu's avatar

Your relative can, of course, elect to use a Form 1040A and itemize all she wants. But like @kevbo said, the standard deduction might make the point moot.

For that reason, I really enjoy using TurboTax.com. It basically allows you to itemize everything quickly and easily. Then you can compare to the standard deduction and take the one best for you.

@Snarp, sounds like you equate home ownership with “upper middle class and wealthy”. And also like you don’t give much credence to the concept that home building and purchasing is a significant driver in the economy. Government incentives, like tax breaks, help keep that ball rolling. And there are plenty of folks just scraping by who have a mortgage and it’s good that they do… it’s much more cost effective in the long run.

Snarp's avatar

@robmandu No, I know it’s a significant pretty much the only real driver in the U.S. economy, but that doesn’t make it fair. I’m not prepared at this point to go into all the reasons that it benefits the upper middle class and wealthy more, but start with this: higher income = higher income tax bill, higher income usually = higher home value, higher home value usually equals higher interest payment all of which = more money for the wealthier recipients of the deduction.

Meanwhile, and not really the topic of this post, many people rail against government handouts to the poor, never realizing that homeowners get a much bigger handout in the form of a tax deduction.

Essentially, whatever its effect on the economy, it is the single largest housing expenditure of the U.S. government, far eclipsing things like Section 8.

JLeslie's avatar

What is frustrating to me about the mortgage deduction is it also discourages people from paying off their mortgage. We know the old song about how paying a mortgage of $1000 a month is better than paying rent, because you get the tax deduction. Many Americans have converted in their minds to it is better to have a mortgage. But, it is better compared to rent, but necessarily better compared to no mortgage at all. Most Americans are not fabulous invenvestors that money is not working for them sitting in the bank. I guess you can look at it like if you have a mortgage you can leave the bank holding the bag if you foreclose, but I am not keen on that way of thinking. In other countries it is almost unheard of to have mortgages like we do in the US.

And so, you get housing bubbles.

njnyjobs's avatar

Knowing that you can’t tax write-off a charitable donation should not be a determining factor whether to donate or not. You should donate if you believe in the casue AND you can afford it. Getting a tax benefit is just gravy, if applicable.

Val123's avatar

Yeah, I mean, either you itemize or you don’t. I finally figured out what it’s all about. Our standard deduct was $11,500. When you itemize you’re assuming you’re going to have OVER that amount to itemize.

K, my husband travels. We were told he could deduct his mileage. I thought, Yee Haw, because when all was said and done, at the end of every year he had about $6,000 to $8,000 in mileage deductions. Well, that first year I thought we’d get all of it back, but we didn’t. That’s when I learned that what that did do was give us a nice leg up toward going over that standard deduct of $11,500. You throw in mortgages, etc. we manage to come up with total deductions of $23,000.

This year we went to H&R Block, and I got to watch as she did it, and when I saw that $23,000 I thought we were going to get a refund of about $10,000! (everything over $11,500) But we didn’t, of course. This year I learned that it simply reduced our tax liability. All said and done we got about $2,300 back, which is better than a poke in the eye (but nothing compared to when I was eligible for the EIC!! Those years really spoiled me on tax returns.)

Long story short, unless her contribution was over $11,000 (or whatever) it won’t make any difference.

JLeslie's avatar

I don’t mind if you drift off the main topic by the way, as long as it is related to the tax system I am interested.

robmandu's avatar

[ off topic ]

@JLeslie, well, if that’s what people think, it’s pretty short sighted.

The deduction is only on mortgage interest. And with each mortgage payment you make, you pay a little more principal and a little less interest over time.

As the years go on, your tax deduction for mortgage interest is decreasing, until at the end of your mortgage period, you’re not really getting any notable deduction at all.

And of course, paying on a mortgage is better than paying rent. Assuming your home is well maintained and was purchased at a legitimate price, then you can get all the money paid into the mortgage principal back. Can’t do that with rent.

JLeslie's avatar

@Val123 How much you get back has nothing to do with how many deductions, etc (well it does but indirectly) it has to do with did you pay more than you owed. It is actually better to owe, because you have the use of your money, but $2,300 either way is probably close enough to zero that it doesn’t matter much. (I mean close enough that you would not earn tons of interest on it, especially with todays interest rates, but it is a nice chunk of money if you need it or want to spend it on a nice vacation).

Val123's avatar

@JLeslie I’ve never understood why it would be so advantageous to be able to claim mortgage interest on the tax return. I would think it would be more advantageous to pay the mortgage off, and stick the $1000 a month you’d normally be paying into an interest bearing account. Can someone explain this to me?

Also, per you post up there…that’s right. But as the deductions go up, what you owe goes down, and that’s where the refund comes in.

Yes….it helped us get caught up on our house payment, is what it did! And we paid off the last of a small balance on a loan. And went to dinner. And bought a new door knob. And….stuff. :)

robmandu's avatar

@Val123 and @JLeslie, it’s the same “advantage” one gets for having children and getting a deduction for each additional dependent. As I’m sure you know, it costs way more than $3,650 (2009 dependent exemption) to raise a kid per year.

JLeslie's avatar

@robmandu Sure, I agree with the idea that better to pay for your house over time and wind up with something you can live in for free eventually, instead of paying rent your whole life. That goes with what I said. Better to pay mortgage than rent; but, better (usually) to pay no mortgage and own your house.

@Val123 I did the math about a year ago on my mortgage. It came out that I was paying about $3500 extra every year by having a mortgage, but I am very conservative in how I invest, keeping a lot of money in CD’s. If you someone is making better money on their money they might do better by keeping the money in other investments and not sitting in their home. It is sort of depends on the individual.

I know as the deductions goes up your refund is bigger; but if I were you, I would make sure next year that I pay less taxes before the end of the year and get a smaller refund or owe, but that’s me.

@robmandu Now that is a deduction I don’t agree with. Why should the government give you a break because you had a child?

wilma's avatar

@JLeslie you said _” But, also, I only recently learned that if you are poor you get tax money given to you. You don’t pay taxes and you get money from the federal government. I am not talking about welfare. WTF?“__
Yes, I know quite a few people who work, just enough to be able to file taxes just so that they can get money from the government refunds. They don’t pay in any taxes, but they sure as heck get a lot paid to them.

Val123's avatar

@JLeslie Ah, we look forward to the return. I know, I know. The cost of living and all, but the fact is, if we got more money on our checks, we’d just spend it.

I have about a million questions to ask you, because you seem to know how this stuff works! I think I’ll go to PM.

JLeslie's avatar

@Val123 I understand, people want the refund check. Like I said $2,000 is not so much that it is a big deal from an investment perspective. If you love the check keep it as it is.

JLeslie's avatar

@wilma That is awful. That really is the redistribution of wealth. I still don’t get that.

wilma's avatar

Yes @JLeslie, “redistribution of wealth” that is exactly what that is.

njnyjobs's avatar

@JLeslie child deduction and child credit for that matter is given by the government because that’s whats been written into law. You can argue that it’s unfair to those who do not have children, but who said life is fair? Nobody is denied the opportunity to claim the child deduction and/or child credit, as long as they meet the requirements.

Val123's avatar

@JLeslie I’m working toward the time when we have the extra to invest….so much crap to pay off…..but getting there, slowly but surely.

robmandu's avatar

@JLeslie, anytime a person gets to keep his/her own money instead of paying it in taxes, it’s almost universally a Good Thing and not redistribution of wealth. A refund check, if it works out that way, is just getting back what’s rightfully yours in the first place.

Mortgage interest deductions and personal dependent exemptions fall into the Good Thing category. People keeping their hard-earned money makes it worthwhile.

Accepting government largesse is something people in this country used to avoid. Unfortunately, we all can now catalog the times that government has unfairly taken more than its due and so many of us feel payback above and beyond what we’ve earned is right and necessary.

Val123's avatar

@robmandu I can understand standard deductions for having children, but do you know what the EIC is? If you make a certain amount, up to $12,500 (at least in 95 that was the number) you get, like, $2000 back up to 2 children. OK, below $12,500 the refund amount starts dropping, above $12,500 the refund starts dropping. In other words, you have to be incredibly poor to qualify for it.

wilma's avatar

@robmandu It was the people who do not pay taxes, but are getting a tax refund that we were talking about.
They don’t pay in, but they get money out.
I agree with you that “anytime a person gets to keep his/her own money instead of paying it in taxes, it’s almost universally a Good Thing”

njnyjobs's avatar

@Val123 and @wilma
The US federal Earned Income Tax Credit (EITC or EIC) is a refundable tax credit designed to encourage low-income workers to continue to work and offset the burden of U.S. payroll taxes. It was designed as an anti-poverty tool, with the intent of lifting the lowly paid workers out of the federal poverty line when given the extra cash by way of the EIC. Sure they end up not paying taxes and on top get even more, but that money will go around again the community as they spend the money, it actually helps the economy go on while keeping those people out of the welfare rolls.

Val123's avatar

@njnyjobs I know. I sure didn’t turn it down. I did my own taxes then, and one year I was scrambling to FIND money to get me right at $12,500.

JLeslie's avatar

@njnyjobs I realize it is a legal deduction, the child credit, I was just questioning if we should have one. I think everyone should take advantage of any deduction they are entitled to.

The EIC, which I admit I know little about, keeps them working, because I guess they have to work to get the money, but it also keeps them from working more, if it will disqualify them from what @wilma implied. I would rather pay them more in their pay check somehow then let them stop working and collect. Of course I don’t have a perfect answer for that off the top of my head though :).

The money the upper middle and upper class save on these smaller deductions they most likely put in their pockets.

njnyjobs's avatar

@JLeslie I think the more appropriate statement is : everyone should apply each and every deduction and credit a taxpayer is entitled to on your tax return.

JLeslie's avatar

@njnyjobs I am not sure I understand. On my deduction? Or, “your” meaning the third person you?

augustlan's avatar

[mod says] Personal information removed via internal edit.

njnyjobs's avatar

@JLeslie every taxpayer should apply each and every deduction and credit a taxpayer is entitled to.

Val123's avatar

@JLeslie Well, as someone who had the “advantage” of the EIC, I can tell you I’d much rather have had a job that paid more than what I’d get via the EIC,and eventually I did get one. As my income went up, my EIC went down, and that was fine. But that’s just me. I’d rather work for what I get. But I totally understand what you’re saying. Some people are just lazy, and should we have to pay for that laziness? @njnyjobs too…..

JLeslie's avatar

@Val123 Yeah, I am not against helping people financially, but when it is demotivating I don’t like it. I really wish there was more equality, or balance, or I don’t know what to call it, in how much people are paid. Anyone who works full time, does their job well, and overall acts responsibly should be able to afford living in a safe neighborhood, with good schools, and decent housing.

Val123's avatar

@JLeslie I so totally agree. But sometimes the fight can be viscous. I wish there was a way to separate those who are slacking from those who are fighting !

JLeslie's avatar

@Val123 I know, but I think it is almost impossible. Even the slackers I would not leave out on the street, and some are mentally ill, and I have great empathy for that. The thing that is frustrating about mental illness is I think environment has a lot to do with it, and so then I am back to better and safer neighborhoods, good education, etc.

@all As far as taxes go I want a flat tax and do away with all of the loopholes. I had a rental property for a while, I would have bought it regardless of the tax deductions. The only thing I did do was hang onto it for a year before selling, instead of flipping immediately, so I could pay less taxes.

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