In other words, you would have to round up purchases by 50 cents 64 times every day for an entire year, and save every receipt, to reduce your tax bill by $1, assuming you have a typical income and typical tax deductions. A growing number of retailers offer customers the option to round up purchases at checkout and donate that change to a nonprofit organization. Research has shown that this is an effective way to raise money, since it’s not asking much from the shopper, and all those little donations add up for the organization. But donations are a two-way street. You get the satisfaction of helping a cause plus a tax benefit: You’re allowed to deduct charitable donations to qualified organizations from your taxable income on your federal tax return. In theory, it sounds like it would help you save money. However, when you break it down, it could take a while to make a difference for your tax bill. In order to deduct your charitable donations, you have to itemize your taxes. And it only makes sense to itemize if all of your tax deductions are greater than the standard deduction, which, for 2022, is $12,950 for individual filers and $25,900 for married taxpayers who file jointly. According to research by the nonprofit Tax Foundation, the middle bracket of tax filers by income could claim an average of $1,288 in deductions for things such as medical expenses, charitable donations, and state and local taxes—that’s much less than the standard deduction. So if you are a single filer taking $1,288 in tax deductions, you would have to make $11,663 of additional charitable donations to make itemizing worth more than the benefit the standard deduction provides. For the purposes of this example, let’s assume round-up donations at checkout average 50 cents. That’s 23,326 times you’d need to round up your purchases. (Little wonder that only 5.5% of middle-income taxpayers itemize their tax deductions, according to Tax Foundation estimates.) After the standard deduction threshold, charitable donations reduce tax bills much quicker, but still only by a few bucks at a time. While rounding up your purchases at checkout could take a while to make a difference on your taxes, it’s still an easy and great way to donate money to good causes. And if you’re making end-of-year tax moves, now may be the time to donate to your favorite organizations, consider whether you’ll itemize or take the standard deduction when you file in the spring, and make retirement account contributions if you haven’t yet hit your maximum for the tax year. Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.
