As we jump neck deep into the holidays, charity and charitable giving becomes a larger topic of conversation for some. When it comes to this topic, I feel that people usually fall into one of two camps: we’ll call them Camp A and Camp B. The folks in Camp A, they are the sort of people that are active charity participants, meaning that they donate either their time or their money, in some cases both, for 1 or 2 causes that are really important to them. The people in Camp B are the wishful participants that are periodically inspired to donate their time or money to an organization, but they rarely do.
The people in Camp B aren’t bad or insensitive people, really! There can be many reasons people fall into Camp B: life gets in the way, you’re just trying to financially stay above water, you don’t know where to start…we all have our reasons. Whether you fall into Camp A or Camp B, you should understand the values of charity as part of your financial health.
I began to understand what charity was all about early in life because I grew up going to church until I was old enough to make my own decisions around religion. I went to a Catholic middle school and high school where some of those religious practices like tithing and volunteering for certain community-based causes were required. While religion doesn’t impact your ‘charity bone’ as I’ll call it, I will say that it forced me to participate in charity. We were required to do 30 hours of community service a year or…or else! Man was that a drag when we were doing school full time, playing two sports a season and trying to party on the weekends here and there.
The one thing that I remember about this forced participation though, is that if I had a list of charities to choose from and could set up the time in advance, I always enjoyed donating my time. I’ve found that the biggest hurtles to building up your charity bone is time and money.
Now, I am a poster child for Camp B. Charity sounds like such a good idea because it makes you feel good, but who has time or the extra money to donate?! I’m so busy saving for my financial future I can’t donate to charity! I feel ya buddy!
So what if I told you, for some, there is a way to donate your money in a manner that will benefit you both mentally AND financially? Say what!? Yea, it’s true. Turns out the government has some good qualities after all! The IRS will allow you to ‘write off’ donations to qualified organizations if you itemize your deductions. Sorry, I’m back to not speaking English again.
I’ll be honest, there’s no easy way to explain how taxes work, people get degrees for that kind of nonsense, which is why Turbotax has been so successful. I’ll also add that I am NOT a tax professional and you should always consult one before you make any decisions regarding your own filing practices, but I’d like to educate you on how some of this charitable giving stuff works.
When you pay taxes, everyone is allowed to deduct something and you can choose to either take a ‘standard deduction’ or ‘itemize your deductions’ – whichever is larger.
While your tax preparer will do this for you, it can be valuable to know which one you ought to do, because only one option allows you to deduct charitable donations from your income (hint: it’s the itemized deduction option). Sigh. I guess the government isn’t that great.
A standard tax deduction allows you to automatically deduct a specific dollar amount from your income regardless of your donating practices:
Single: $12,000 | Married: $24,000 (if you file jointly)
An itemized deduction allows you to deduct a dollar-amount-worth of expenses if it gets you to a higher dollar amount than the above. Here are some examples of things that you can add up to make a deduction:
· Home mortgage interest
· Property, state, local income tax
· Charitable donations
· Qualified educational expenses.
(if you’re a tax nerd here’s an article that dives in a bit deeper to these: https://www.moneyunder30.com/itemized-deductions)
Great Magda, a standard deduction seems easy enough, but what am I supposed to do with an itemized deduction? Carry a spreadsheet with me everywhere?!
Ok, I’ll make a generalization that might help you: we are unlikely to itemize our deductions unless we (a) own a home (b) donate $1000’s to charity (c) are in school and paying for the education ourselves. I know, some of you are saying, “Uh yea, that’s me Magda, duh!” Let’s fist pump that one because because I don’t have any of those things either but for the others, get your charity donations on! You can deduct charitable donations as long as it is to a qualified organization and you leave with a slip that tells you how much you’ve donated. Those slips that Salvation Army hands you after donating a bag of clothes: hold on to it! That is an itemized charitable donation eligible for deduction! What that means is, like your traditional retirement account, you would lower your income for the year by making the contribution.
Example: You make $100,000 and you give a donation of $2,000 to a qualified charity. When you pay taxes it will appear as if you made $98,000 and that is what you are taxed on.
Ok what about the rest of us!? What about the Camp B people?! This stinks! I don’t save money by donating? Ugh. Ok let’s back up, let’s not forget the value in donating, you help someone and that always feels good. If you’re not financially able to give, you can also donate time. While we spend most of our lives trying to accumulate wealth and/or just not live paycheck to paycheck, if you’re reading this article it’s because you’re fortunate enough to have a computer (or smartphone) with an internet connection. We can lead better lives by donating whatever we can give. Use it as a reason to not buy that new fancy handbag or spend $100 at the bar tonight. Thinking about charity and charitable giving helps you to not only be a better person, but to remember to save for yourself and prioritize your own finances.
The last thing that stands in our way is finding a place to donate. I feel ya. In this time of cynicism, it is hard to ensure that your donation (whether it’s time or money) will actually help those that you are trying to help. My suggestion – go find your friend or friends in Camp A, we all have one in the group. They do it, they donate, and they love it. I’m sure they have suggestions for various organizations or causes. If not, donate your time before money. This way, you get to go behind the scenes of an organization and know what they are all about. Then, next year, if you are just too busy to donate time, donate money to that same organization.
So, now that you’re on a donating high, where will you donate before the end of the year? Don’t forget, all charitable donations must be made before December 31 to qualify for tax deductions!