(aka: explaining the Standard Deduction and Itemized Deductions in Three Easy Steps)
“Everybody knows” that charitable donations are tax-deductible. “Everybody knows” that you get a tax break on your home mortgage. Everybody is mostly wrong. Here’s why:
Step 1: In the U.S., it basically works like this:
Step 2: You have two options for that yellow “deduction” bubble. Option A is the “standard deduction” and option B is “itemized deductions.” How do you pick? Take whichever one is larger, so you pay tax on less income. Like this:
Option A (standard deduction) or Option B (itemized deductions)
Step 3: For 2020 the standard deduction is $12.4k for single filing status and $24.8k for married filing jointly. It’s “standard” because those amounts are the same for everyone (also, they are adjusted for inflation every year). What are itemized deductions? The most common are: charitable donations, mortgage interest, and state and local taxes (up to $10k). You add up the amount of each deduction to arrive at your own itemized deduction amount.
Most people do not itemize because for them, the standard deduction is larger. For 2018, the Joint Committee on Taxation estimated 87% of tax filers would take the standard deduction while only 13% itemized. If you take the standard deduction, neither your taxable income nor the taxes you pay will be impacted by charitable donations (or mortgage interest). So don’t worry about taxes, and just be generous because you want to be.
Jan 2021 update: We now have an “above-the-line” deduction for charitable donations in 2020 up to $300 for people who don’t itemize, and up to $300/$600 for 2021 (depending on filing status). This article gets into all the details. These are one-offs from Congress…so just when you thought you understood everything about charitable donations and taxes…they changed it up on you!
 See February 7, 2018, “Overview of the Federal Tax System As In Effect for 2018,” Joint Committee On Taxation, p. 4, https://www.jct.gov/publications.html?func=startdown&id=5060, accessed December 30, 2019.