What is the tax savings for charitable giving when you have both ordinary income and capital gains?

Question

Say, for example, I make $300,000 in ordinary income this year and $300,000 in capital gains.

If I donate $10,000 from my cash accounts to charity, does the deduction get applied to my ordinary income tax rate or my capital gains income tax rate first?

Answer 1

Charitable deductions (and all Schedule A deductions) are applied to your marginal tax calculation. They reduce the taxable income on the line 43 of your tax return (form 1040). When you calculate your tax on the capital gains tax worksheet, you start with that number. You then deduct all the capital gains from it and calculate the ordinary tax on line 24 of the worksheet.