Tax credit vs tax deduction: why the difference is worth about $1,300

If you itemize and donate $1,700 to a charity, your taxable income falls by $1,700. Your tax falls by $1,700 times your marginal rate. If you take the standard deduction, as most filers do, an ordinary donation used to change nothing on your return. From 2026 there's a small exception, covered below.

Donate $1,700 to CEN SGO in 2027 and your federal tax falls by $1,700, as long as you owe at least that much after other credits. Your bracket doesn't matter. Whether you itemize doesn't matter. (Source: §25F(a), (b)(1))

You only itemize when your deductions add up to more than the standard deduction. For 2025 returns, that's $15,750 for a single filer, $23,625 for a head of household and $31,500 for a married couple filing jointly. Most households never reach it. (Form 1040, 2025)

Example. A married couple has $22,000 of mortgage interest, state and local taxes and donations. That's under $31,500, so they take the standard deduction. An extra $1,700 donation to an ordinary charity still leaves them under it, and saves them nothing through itemizing. The same $1,700 donated to CEN SGO in 2027 saves them $1,700. Illustrative figures.

Put another way: $1,700 to an ordinary charity, deducted at 24%, costs you $1,292 after tax. $1,700 to CEN SGO, taken as the credit, costs you nothing after tax, as long as you owe at least $1,700. Illustrative figures. (Source: §25F(a), (b)(1))

Example. Dana is single, in the 12% bracket, and takes the standard deduction. Raj and his wife are in the 24% bracket and itemize. Each household donates $1,700. Given to an ordinary charity, Dana saves about $120, through the new deduction for non-itemizers on the first $1,000. Raj saves $408. Given to CEN SGO in 2027, each saves $1,700, as long as each owes that much after other credits. Illustrative figures.

The lower your bracket, the bigger the gap. A deduction rewards people in high brackets who itemize. The credit is worth the same to everyone who owes enough tax.

From 2026, people who take the standard deduction can deduct up to $1,000 of cash donations to eligible charities, or $2,000 on a joint return. Donations to donor-advised funds don't qualify. Itemizers face new limits of their own from 2026, so ask your preparer how they apply to you. (IRS summary of the 2025 law)

That deduction is still a deduction. At 22%, $1,000 of it saves $220. The federal credit on the same dollars saves $1,000. So the credit comes first, and the deduction is for what you donate beyond it.

One claim per donation. If you claim a federal tax credit, you cannot also claim a federal tax deduction from the same donation. That sort of double-dipping is prohibited. You should always discuss your particular circumstances with your accountant, but for most donors with federal income tax to pay, the credit will almost always be the better choice by a wide margin, because it reduces the bill dollar for dollar rather than reducing taxable income. (Source: §25F(e))

Similarly, you cannot claim a state tax deduction or credit (if your state has its own SGO scholarship program) for a donation if you are claiming a federal tax credit or deduction for the same donation. One tax benefit per donation. Two credits, two donations explains how the federal and state pieces fit together.

Example. You want to give $2,500. Make one $1,700 donation for the credit and a separate $800 donation. Your preparer shouldn't deduct the $1,700. Ask them how to treat the $800: if you itemize it may be deductible, and if you don't it may count toward the $1,000 non-itemizer deduction.

Cash donations, from January 1, 2027, to an SGO on a joined state's list, not earmarked for a student. Everything else on the donors page. (Source: §25F(c)(3), (d)(1)(E))

• Deducting the $1,700 as well as claiming the credit.
• Assuming the credit only helps people who itemize.
• Assuming a state scholarship credit works the same way. It's against state tax, and you can't claim it on the same donation as the federal credit. Two credits, two donations