‘Tis The Season For Charitable Tax Deductions

When I graduated college and started working I donated about 2-3% of my post-tax income to charity and sent an additional 2-3% to my brother for his college expenses. For a while this made me feel good; I was hitting my savings goals and giving back a little on the side.

But over time, as my income and wealth increased, I felt guilty. I earned more than I needed and had somehow ended up on the “right” side of this country’s inequality problem. Morally, I did not feel like I deserved the money I received (and still don’t) and I felt like the wealth I was accumulating was unfair. I had to do more.

Starting last year, I made the commitment to give away 10% of my post-tax income, including those aforementioned family “donations”. I do post-tax income because I feel like I never see the money that goes to Uncle Sam. I do 10% because I grew up around very religious folk and felt like, though I’m not religious myself, I wanted to have something akin to a secular tithe. An amount that felt “moral” but not like I was giving away the farm. Something that was just the right amount of painful.

As I mentioned in my credit card churning post, I have a big $10,000 expense coming up. What I didn’t mention is that big expense is my end-of-year charitable donation flurry.

Note that I’ve been donating money throughout 2017 and $10,000 was a lot more than I was expecting to donate at the end of this year. I’ll be way over 10% post-tax for 2017. But, because of the tax bill in Congress and my changing marital status, I’m not sure I’ll be itemizing my deductions going forward, so I decided to max out as much of my deduction space as I could before hitting the AMT and “prepay” part of my obligation for 2018.

Between the charitable tax deduction and credit card churning, donating 10% of my income impacts my finances less than you’d think. For instance, for the $10,000 I’m donating in December, I get 28% back in my tax refund (more like 25-26% if you consider that I then donate 10% of my refund). I’ll also net another $2250 on credit card bonuses whose minimum spend I otherwise wouldn’t be able to reach. So, for $10,000 of charitable impact, I’m really only giving away something closer to $5250.

While I’ve considered opening a donor advised fund to manage my giving, I’ve decided against it, at least for now. The management fees are very high and I’m not really a foundation type of person; I don’t see much reason to earmark money for charitable giving long before actually donating it. Yes the money will grow sitting in the market under my control, but I’d rather a charity have money now that they can use to prioritize their needs, distribute accordingly, and have the money flow back into the economy rather than waiting for a year to donate 8% more. I might feel differently though once I start thinking about amassing a “leave a legacy” amount of money. Maybe after we pay off the mortgage.

The one benefit of DAFs I like is that it is easy to transfer equities as donations to skip the capital gains tax on those equities since technically they aren’t being sold. But I can do the same thing transferring equities as an individual to most of the organizations I donate to. Granted, it will be more paperwork.

Anyway, here are the areas I donated to in 2016 and 2017:

donations.png

I don’t plan at the beginning of the year how much I’ll donate to each area, but I think this is more or less a decent reflection of my values. Note that in each category, I donated as much or more in 2017 than in 2016. So even if the % proportion is smaller in 2017, that’s just because I donated so much more in total. From the top and in clockwise order:

Brother’s Education – Because my parent’s financial situation isn’t great, most of my brother’s college expenses are covered by scholarships and grants. However, there is still a bit of a gap. Every year I send him money so that when he graduates, he can do so loan-free. While not actually “charitable giving” I count this as part of my 10% obligation per year. He will be graduating in 2018, so this portion will shift to “real” donations soon.

Political Donations – Again, not really charitable giving, but I have in the past couple years donated to candidates– all either women or minorities– who I’ve wanted to see better our government.

Disaster relief and International aid – I group these two categories together since there are a few organizations that fit both in my list, such as: American Red Cross, Oxfam, Doctors Without Borders, and UNICEF. Also on the list: Give Well, Unidos Por Puerto Rico, International Rescue Committee, and a local fire relief fund.

Immigrant / Diversity – Two big donations to CAIR.

Civil Rights – Between November last year and January, I donated a lot to the NAACP, ACLU, and SPLC.

Food Security – This is for the big name food bank in my city as well as a small, local food rescue organization that donates fruits and vegetables to seniors, people with disabilities, and other food programs. This is money I feel “proudest” to donate to each year (see: my deep emotional connection with food).

Environmental – Last year I donated to a spate of non-profit environmental litigation organizations including: National Resource Defense Council, Environmental Defense Fund, Earth Justice, and Southern Environmental Law Center. This year I’ve winnowed myself down to just the NRDC. I also donate to direct action and advocacy groups like: the Arbor Day Foundation and the Sierra Club.

Criminal Justice – This year, I solicited my fiancé’s advice for additional charities to donate to since I want this to be a family-run practice going forward. It wasn’t until he gave his suggestions that I realized I’d been really negligent on the criminal justice front. He proposed we add: our state’s bail fund, a local LGBTQ+ criminal justice advocacy group, and the Transgender Law Center specifically for their detention project work.

What is your charitable giving philosophy? Do you have a donor advised fund? How much do you donate and to what organizations? 

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4 thoughts on “‘Tis The Season For Charitable Tax Deductions

  1. Really interesting post! I’m easing into doing more charitable giving (as I’m so newly back to my private sector salary, and I couldn’t donate to political causes while I was clerking), so I don’t have much of a plan yet for myself.

    It’s wonderful to be able to help out your brother with the college expenses. There was some talk at my law school and undergraduate institution in recent years about the gaps that need-based financial aid and/or merit scholarships doesn’t cover. The problem was particularly serious at the undergraduate branch of my law school, given the NYC location. (Students who go hungry because they save by opting out of the meal plan or opting for less than every meal, students who go without a winter coat in places where it snows in winter.) I usually direct my donations to my undergraduate institution to the office at school that is best equipped to deal with those concerns. It’s good when family is able to help cover that gap!

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    1. Yeah, I was lucky that my undergrad was super generous and I got enough need based aid to graduate loan free. But even then I had to skip meals and take up a part time job to cover the taxes on my non-tuition scholarship money.

      I remember asking Reddit’s PF board how much money would be reasonable to assume a college student could make with part time work (so I could adjust my giving accordingly) and they flipped out that I was coddling him, college was useless, and he should stop being such an entitled millennial. I am just glad he’ll have flexibility in his post-graduation life without student loans weighing him down.

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    1. That’s great you’re trying to incorporate giving into your budget. It took a few years for me to get to the point I felt comfortable giving away 10%. I think pushing yourself to increase gradually (say, 1% each year) is a good way to transition into it without being super jarring.

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