taxes

5 tax deductions that favor the rich

Charitable deduction: good cause, policy flaws
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Charitable deduction: good cause, policy flaws

The charitable-giving deduction effectively operates as a federal matching program: make a charitable donation and receive a tax break. In fiscal 2011, the charitable deduction saved Americans (and cost Uncle Sam) $53.7 billion, according to the U.S. budget.

The problem with the charitable deduction is similar to the mortgage income tax break: The value of the deduction increases with income.

"If I give $1,000 to charity and I'm in a 10 percent tax bracket, I get $100 back on my taxes," says Wilkins. "But if I'm in a 35 percent tax bracket, I get $350 back from the federal government."

Plus, you have to itemize on IRS Form 1040 Schedule A to claim the charitable deduction.

"If we're trying to encourage charitable giving, we should be encouraging people with less money than people with more money to make those gifts," Wilkins says.


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