Jon Bakija Tax Policy and Philanthropy: A Primer on the Empirical Evidence for the united States and Its Implications

federal and state tax policies in the united states offer substantial incentives to donate to charity. The federal income tax and most state income taxes give taxpayers the choice between an itemized deduction for expenditures such as charitable donations, mortgage interest , and state and local taxes, or a standard deduction, which at the federal level amounts to $12,200 for married taxpayers filing joint returns and $6,100 for single taxpayers in 2013. Among those who choose to itemize , each additional dollar that is donated reduces income tax liability by one dollar times the taxpayer's marginal tax rate (that is, the income tax rate applying to the last dollar of taxable income), which in the federal income tax in 2013 can be as high as 39.6 percent. In addition, when someone donates an asset that has appreciated in value, he or she avoids any federal and state personal income taxes that would otherwise have been due on the asset's capital gain (the increase in asset's value since it was originally purchased), had the owner eventually sold the asset before death. Numerous other federal and state tax provisions, such as the alternative minimum tax (AMT), phase-outs and limitations of various deductions and credits, and estate and inheritance taxation, can influence the tax savings from charitable donations as well.