Can someone please explain how tax-deductible donations work?

Question

I own a company and would like to donate to a non-profit organization so that i pay less in taxes ... is it just a matter or reallocating the funds that supposed to be paid in taxes to donations?

Please explain. No-brainer examples appreciated too.

Answer 1

you pay taxs on what is left after you pay all your business expenses and deduct all your deductions. whats left is your taxable income. any money you give to a recoginezed charity is a further deduction. there is a box on your tax form to enter charitable contributions. make sure you have a receipt for any contributions. if you claim an amount that looks out of the ordinary they will probally ask for an explanation. if you have proof of all your contributions you will be fine.

Answer 2

A tax-deductible donation reduces the income on which you pay taxes.

Example:  Assume the following:

Income is $100,000

Tax rate is 30%

Tax payable is 100,000 x 30% = $30,000

After tax income = $70,000

Now, assume that you pay $10,000 to non-profit.

Taxable income is100,000 - $10,000 = $90,000

Tax payable = 90,000 x 30% = $27,000

After tax income = $63,000

So, you have reduced your taxes but you have also reduced you after tax income.

Answer 3

No, it doesn't just reallocate the funds.  Say you donate $500 to an eligible charity, and you are in the 15% tax bracket.  The deduction means that $500 of your income isn't taxed.  So the actual tax savings is $500 times .15, or $75.  The other $425 comes out of your pocket.