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I understand that if I'm in a 20% tax bracket, I have itemized deductions above standard, and I give $1000 to charity, that I'll pay $200 less taxes, so the gift actually cost me $800. I didn't actually save money.

But looking at a slice of the most recent tax brackets:

Tax rate: 15%   Single filers: $9,226 to $37,450
Tax rate: 25%   Single filers: $37,451 to $90,750

If my AGI was $37,500 and I donated $100 to charity, then I'd pay $5610 instead of $9375.

Is this really how it works? When I've been looking around the net for information on this issue, I have not seen any articles that point this out. They talk instead about giving because it's good to give (I happen to agree), but that it won't actually save you any money.

Sub question: Is it different for a business vs. an individual?

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That plan wouldn't save you any money because tax brackets don't work that way. All of your earnings up to each level are taxed at that rate. You aren't taxed at the highest rate on all of the money.

In your example you pay...

  • 15% on all of your earnings up to 37,450 = $5,617.50
  • 25% on all earnings above 37450 = $12.50 total of $5,630

If you reduce your income to $37,4000 you pay...

  • 15% on all earnings = $5,610.00

In the end you'd be spending $100 to save $20.

The only way you conceivably come out ahead by donating to charity (not counting the good karma for doing so) is if you own the charity and it is a way for you to funnel money to yourself and write it off.

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    funnel money to yourself and end up in jail. :)
    – TecBrat
    Commented Oct 15, 2015 at 4:45

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