April 4, 2010

The Three Key Questions For Your Charitable Giving

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When giving, the goals of the charity and tax collector often differ from yours. Charities want money now: a donation deferred may go to another cause or never be made. The tax collector wants donations deferred since that maximizes tax revenue now. What about you? What do you want?

When giving to charity, ask yourself these three key questions:
  1. Why do you give?
  2. What do you give?
  3. When do you give?
Your answers decide which parties benefit and by how much.

Your Reason For Giving

Why does your motivation matter? In many ways, it doesn’t. Giving is good regardless but your reason for giving sets boundaries on where you give.

You've got a range of choices. A pure gift gives you full flexibility but no tax receipt. Registered charities give tax incentives but limit the causes available.

Your Gift

Would you give without tax incentives? Would you give more with tax incentives or recognition?

Foundations with names like Gates, Rockefeller, Rogers and Schulich do good and get recognition for the families. Compare that with Warren Buffett who doesn't want his name on anything. Yes, Warren gets publicity but he's not building edifices in his tribute.

You can give different things. For example,
  • cash
  • listed securities, art or property
  • a life insurance cash value or death benefit
If you give art, what’s the market value? Figuring that out costs the charity in time and money. Conservative appraisals mean lower tax deductions for you. Aggressive appraisals can lead to scrutiny by the tax collector.

Pure Gift

A pure gift has no strings attached. Since you get no tax receipt, the tax authorities have no say in how you use your money. Think of Google.org, which is not a registered charity. That gives the flexibility to invest in entrepreneurship in developing countries (foundations are blocked from initiatives that might be profitable). Their other causes include cheap renewable energy, hybrid electric cars and predicting flu trends in near real-time.

Pure gifts preserve your privacy and could be anonymous. With no records anywhere, you’re less likely  to get pestered to repeat your generosity. We're engulfed by people who could use a boost to better their lives. Think of street musicians, part-time delivery people, restaurant servers and artists. You can attend a performance by an undiscovered playwright or buy a CD from the musician performing at a wedding reception.

Other Forms of Gifts

Scarcity creates value. You can give a more valuable gift than money: time. Time is irreplaceable and we have as much as the wealthiest. You can donate your time by blogging, podcasting, video casting, leaving online comments.

You can give for free when others would charge: volunteering, presentations, coaching, training, mentoring. You can also donate blood, organs (at death) or food.

The Timing of Your Gift

You can give now, continually, or when you die. Tax deductions occur at the time of your gift. The biggest deduction often comes from donating a life insurance death benefit. That's an easy and inexpensive way to leave $100,000, $1 million, $10 million or more. Your gift will be sizable but the charity must wait until you're dead. There's something perverse about helping the charity most by dying. How much does a hitman charge these days?

Without enough regular cash flow, the charity could disappear while waiting for your donation. You get no advantage to your lifetime either. Your estate benefits from the tax deductions, which leaves more for your beneficiaries.

Originally, Warren Buffett planned to donate via his estate. After his wife Susie died, he decided to give annually to the Bill and Melinda Gates Foundation with the stipulation that the money be spent that year.


Podcast Episode 61 (5:08)

direct download | Internet Archive page

PS Thanks for donating your time to reading this post. Sorry, no tax receipts!

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