Homework Clinic
Social Science Clinic => Economics => Macroeconomics => Topic started by: mimie on Nov 23, 2022
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Suppose you can claim all your charitable donations as a deduction on your federal income tax (if you decide to itemize deductions) and the top marginal tax rate is 37 percent. What is the cost of a $2,000 charitable contribution for someone who itemizes and who is in the top tax bracket? If there is a cap on itemized deductions of $25,000 and Maya is in the top tax bracket and has $25,000 of deductions for property taxes and interest on her mortgage. What is the cost of a $2,000 charitable contribution for Maya?
Please round your final answer to two decimal places.
◦ $1,260.00, $2,000
◦ $740, $740
◦ $740, $2,000
◦ $1,260.00, $1,260.00
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$1,260.00, $2,000
For a person who itemizes and is in the top tax bracket, 37 percent of their charitable contribution can be used to reduce their tax payment.
Tax reduction = 2,000*(37/100) = 2,000*0.37 = $740
Therefore, the cost of the charitable contribution is Contribution - Tax reduction = 2,000 - 740 = $1,260.00.
If there is a cap on itemized deductions of $25,000 and May is in the top tax bracket and has $25,000 of deductions for property taxes and interest on her mortgage, she will not be able to deduct any of her charitable contributions from her taxes, so her cost is $2,000.