Varying Value of Deductions

Question

Shaylee falls in the 10% tax bracket, while Joseph falls into the 28% tax bracket. In 2013, they both itemized their deductions and paid out $5500 to charity. Based on their tax bracket, figure how much their charity actually cost them.

Shaylee paid ??. (Do not use commas.)
Joseph paid ??. (Do not use commas.)

Answer 1

Shaylee falls in the 10% tax bracket. This means she must pay 10% of her income as tax. However, since she itemizes her taxes, she may deduct the amount of her charitable donation from her income.

Thus, assuming she earned at least $5500, she does not have to pay the 10% of the $5500 she donated. Ten percent of $5500 is $550. Thus, $550 would have gone to the government in taxes if she had not donated it, meaning that $5500–$550=$4950 is what her donation actually cost her.

You can use the same thinking, the same logic to figure out what Joseph's charitable contribution actually cost him.