Mike and Mandy are considering contributing $5,000 to their favorite tax-deductible charity.This contribution will bring their total itemized deductions to $20,000.Assuming they are in the 28% marginal tax bracket,how much will they save in taxes by contributing this $5,000 to charity? (Hint: Consider the amount of the standard deduction.)

Question

Quizplus · Accepted Answer

If Mike and Mandy did not contribute the $5,000 to charity, their itemized deductions would be $15,000 ($20,000 - $5,000). Since the standard deduction for a married couple filing jointly in 2021 is $25,100, they would take the standard deduction instead of itemizing.

By contributing the $5,000 to charity, their total itemized deductions become $20,000 + $5,000 = $25,000. This is greater than the standard deduction, so they would itemize their deductions.

In the 28% marginal tax bracket, a $5,000 deduction would save them $5,000 x 28% = $1,400 in taxes. Therefore, the best choice is B, they will save $784 ($1,400 x 0.56) in taxes after factoring in the cost of the $5,000 charitable contribution.

Mike and Mandy Are Considering Contributing $5,000 to Their Favorite