The Tuesday after Thanksgiving this year is designated locally as “Giving Tuesday.” A company called Razoo has figured out how to gamify giving. I don’t want to stop anyone from playing if they’re so inclined. Far be it from me to tell you social media has no redeeming qualities. But there are a lot of different ways to think about charitable giving.
First, it’s good for you. There’s a fairly new field of study called positive psychology. The idea of positive psychology is to flip around the way you think about mental health: it’s not enough to cure the ill: that just gets you to a baseline of “not sick”. Positive psychology asks, “How can we be really healthy?” In other words, how can we be happy? Giving to others improves your emotional wellness. It pushes people out of bad moods, it builds social capital, it makes you more satisfied that you’ve built a legacy, however tiny (you make the world a better place because you existed if you fund your values), and it helps you to feel a sense of abundance: you are not so poor that you can’t afford to share.
I don’t think it matters how much or how little you give for your own emotional well-being. But, as a matter of practicality I’d recommend that you concentrate your gifts into as few of channels as you can. It probably costs a charity $5 in mailings for each donor they have on their rolls. Perhaps it’s cheaper online where thank you notes are delivered by email, but also consider that Razoo gets a small fundraising cut of each donation. I like to use Razoo to find charities I wouldn’t otherwise have known about, or to help with matching grants, or just for fun – a shopping spree for charity. Another good method is to involve the kids: offer to match their contributions (and then you get the tax deduction!) Razoo has its place, but charities I give to regularly will be getting a check in the mail so they get to keep the whole proceeds.
I like people to choose charities that are weird: maybe three or four that, in combination, only you would have chosen. What do you wish to fix in the world? Use Charity Navigator and their advance search to look for a charity you’ve never heard of. For example, I wondered if any charity is helping gay youths in third world countries. I tooled around until I found the Trevor Foundation, a highly rated charity that helps prevent suicide in LGBT youth. It’s a small group without a nationwide marketing budget so you’d never have heard of them if you didn’t go looking.
There’s a retirement planning opportunity around charities: if you are someone who knows you’ll continue giving into old age, it’s just part of your budget, you can set aside money to donate later and take a deduction now (while in high brackets in your earning years) by funding a Donor Advised Fund. Fidelity lets you set one up for as low as $5,000. You get an itemized tax deduction in the year you put the money into the DAF, it grows untaxed, and you just tell Fidelity where to send the money when you have a charity you wish to support.
Another trick works for people who are over 70 and have Required Minimum Distributions from IRAs. Did you know you can direct the IRA custodian to make a contribution directly to your charity? It doesn’t show up on your return at all: not as taxable income or as a deduction. It’s a cool way to get an “above the line” deduction for gifting.
There are a few other special loopholes around charity. Did you know that you can get a $500 tax credit in MA if you donate $1000 to the Franklin Community Development Corporation? Those are the people trying to do economic development in our rural county at the grassroots level, including through the Western Massachusetts Food Processing Center. There’s a special Massachusetts Community Investment Tax Credit of a 50% match for gifts of $1000 or more.
Similarly, there are opportunities for charitable deductions for donating conservation easements (or even just selling them for less than Fair Market Value!).
In fact, there are a variety of strategies associated with gifting appreciated assets to charities. Say you have some IBM stock your grandfather gave you and it’ll be 100% taxed if you sell it. But, if you gift the stock to charity you get the deduction for the fair market value (with some limitations) without having to report the gain from selling the stock first. Another method has you donating the stock to charity now but working out a deal where you get the income from it for your life. For more complex assets, like closely-held businesses, we might use the American Endowment Foundation. It’s complex, I just want you to know these exist.
One more tip before I end: remember that we will want to have evidence of all charitable contributions, no matter how small. A cancelled check will work, as will an emailed confirmation. But if the contribution is over $250 you also must have a letter from the charity affirming that no goods or services were received in exchange for this gift. I’ll also want to talk to you about miles you drove for charity: are you on the Board of Directors? Working on behalf of a not-for-profit group? We get a small deduction for miles. I also have in my office a book called Deduct It! Deduct It! with updated prices for what thrift stores sell items at: it’s a great way to get a deduction for cleaning out household goods.