Author Topic: Charitable giving?  (Read 2194 times)

mxmoney

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Charitable giving?
« on: September 04, 2018, 12:42:10 PM »
What is a Mustachian way to approach charitable giving? I feel like it is a moral obligation as I make more money than I need to live comfortably. How much should I donate? When should I start? I'm currently working on paying off some credit card debt before I even start saving for an emergency - should I wait until after I've saved for the emergency fund? Thanks!

RWD

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Re: Charitable giving?
« Reply #1 on: September 04, 2018, 12:50:32 PM »
This is a personal decision that really only you can answer. Here are a couple articles from the blog:
https://www.mrmoneymustache.com/2016/10/26/notes-on-giving-away-100000/
https://www.mrmoneymustache.com/2017/12/04/how-to-give-money-and-get-happiness-more-easily/

My opinion is that if you are in debt and give to charity then you are giving away other people's money, not your own. At the very least I think there's a good argument for only donating if you have a positive net worth.

boarder42

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Re: Charitable giving?
« Reply #2 on: September 04, 2018, 12:52:44 PM »
i wouldnt start donating til you're well on your way to FIRE and being in debt is not well on your way. 

How to donate efficiently would be to start a DAF.  Take the large tax break the year you fund it then slowly give it all away or just let it grow and spend its earnings.

mxmoney

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Re: Charitable giving?
« Reply #3 on: September 04, 2018, 12:53:18 PM »
This is a personal decision that really only you can answer. Here are a couple articles from the blog:
https://www.mrmoneymustache.com/2016/10/26/notes-on-giving-away-100000/
https://www.mrmoneymustache.com/2017/12/04/how-to-give-money-and-get-happiness-more-easily/

My opinion is that if you are in debt and give to charity then you are giving away other people's money, not your own. At the very least I think there's a good argument for only donating if you have a positive net worth.

I figured it would not be smart to donate before I've paid off my debts, but after I do that I will have a positive net worth, so mostly looking for advice for after that happens (which should be in the next few weeks).

Sailor Sam

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Re: Charitable giving?
« Reply #4 on: September 04, 2018, 01:25:37 PM »
Charitable giving often comes down to personal philosophy. But here's some guidelines:

1. Decide on a % of either gross or net income. 10% has some historical connections, but there's nothing saying you can't choose less, or even more.

2. Decide on a charity. Many people here endorse The Life You Can Save philosophy. That's a book by Peter Singer, but the recap is that the highest level of morality comes from maximizing the amount of good your charitable dollars can accomplish. This philosophy also endorsed Givewell, which is used to evaluate the efficiency of charities. Others choose local or national charities, and feel helping closer to home outweighs 'inefficiences.'

3. Decide if you will give real-time, or save for a donor advised fund.

4. Decide if giving is important to you now, or if you prefer to wait until you're out of debt. If charitable giving is part of your moral code, waiting might not be right. On the other hand, if your debt+charity leave you or your dependents vulnerable then giving now isn't the moral choice.

@englishteacheralex, have I missed anything?

Aggie1999

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Re: Charitable giving?
« Reply #5 on: September 04, 2018, 01:39:09 PM »
This will sound a bit harsh, but think about the taxes you pay. I look at someone with a high tax rate as giving to charities with their taxes. Now once you reach FIRE and are gaming the system via the ACA, etc then think about giving to charities if you are so inclined.

RWD

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Re: Charitable giving?
« Reply #6 on: September 04, 2018, 01:44:51 PM »
This is a personal decision that really only you can answer. Here are a couple articles from the blog:
https://www.mrmoneymustache.com/2016/10/26/notes-on-giving-away-100000/
https://www.mrmoneymustache.com/2017/12/04/how-to-give-money-and-get-happiness-more-easily/

My opinion is that if you are in debt and give to charity then you are giving away other people's money, not your own. At the very least I think there's a good argument for only donating if you have a positive net worth.

I figured it would not be smart to donate before I've paid off my debts, but after I do that I will have a positive net worth, so mostly looking for advice for after that happens (which should be in the next few weeks).

You'll need to find a balance that works for you. My current plan is to give away only 0.1% of our net worth per year until we reach FI and then ramp it up from there.

You'll likely be able to give more over your lifetime if you wait. For example, let's say you are saving $100k per year for 15 years and you're targeting $80k/year in spending. After 15 years you'll have 2.7m (post inflation, assumes 7% real return) and can donate $28k/year (4% rule). If you had been saving $90k and donating $10k per year then you will have donated $150k up to that point and have $2.4m saved which will support $16k/year of charity. At that point you're already ahead with saving first (as you could immediately donate the extra $300k). After an additional 13 years you will have given more to charity total by waiting in addition to still having a higher total amount saved. There are a ton of assumptions in those numbers, but it gives you an idea of how waiting could be beneficial for both you and the charities.

Novik

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Re: Charitable giving?
« Reply #7 on: September 04, 2018, 01:48:02 PM »
1. Decide on a % of either gross or net income. 10% has some historical connections, but there's nothing saying you can't choose less, or even more.

My personal twist on this is to give based on spending - every year I look at my budget/last year's spending and allocate 10% of that as my charitable giving for the next year. Right now works out to ~3% of income (<3% of gross, >3% of net). You can pick whatever % of spending you want, but the idea is "if I can spend this much a year on myself, I can find a portion of that to give".

Also note that a lot of charities like automated monthly donations for the stability/predictability, and that also makes fitting it into your budget and life very easy, so I recommend that.


I think waiting until you're out of CC debt is reasonable, waiting until you have an emergency fund is fine, but giving nothing after that is often selfish.  Even if the amount is small, being charitable is a habit to develop now, not something to foist on a future, richer self.

cheddarpie

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Re: Charitable giving?
« Reply #8 on: September 04, 2018, 02:57:41 PM »
1. Decide on a % of either gross or net income. 10% has some historical connections, but there's nothing saying you can't choose less, or even more.

My personal twist on this is to give based on spending - every year I look at my budget/last year's spending and allocate 10% of that as my charitable giving for the next year. Right now works out to ~3% of income (<3% of gross, >3% of net). You can pick whatever % of spending you want, but the idea is "if I can spend this much a year on myself, I can find a portion of that to give".


This is what I do too -- 10% of annual spending on everything except housing. Someone here on the forum (Sailor Sam maybe?) had this as a gauntlet challenge a couple of years ago right before the end of the year and I've done it ever since. Because I know there will be an extra 10% "tax" at the end of the year, it helps me keep my spending in check, and it also feels good to know that I have money set aside to give away wherever I choose when December rolls around.

I agree that paying off high interest debts and having a healthy emergency fund take priority, though -- I did that first, as I'm my own best charity case. :)

englishteacheralex

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Re: Charitable giving?
« Reply #9 on: September 04, 2018, 05:12:56 PM »
Thanks for the bat-signal, Sailor Sam!

My personal feelings about charitable giving are very much tied up in Christian theology, which definitely has lots in common with Mustachian but ultimately leads to very different conclusions.

I've read a ton of FIRE blogs over the years and from what I gather, mostly the perspective of charitable giving in the FIRE/Mustachian worldview is:

1. Yes! Giving is important! But never while you're in debt.
2. Giving during the accumulation stage is inefficient.
3. You should set up a special charitable giving trust via a financial company such as Fidelity or Vanguard and that way the trust will earn interest that will then be donated--that's the most efficient way of doing it, particularly from a tax perspective or something...I never looked into this carefully but have read about it on several blogs.
4. Giving is a good thing to do but charity is often inefficient so be careful what you give to and consider giving time instead of money, especially in the accumulation stage.

PERSONALLY, my philosophy of charitable giving is very different from the Mustachian philosophy, but Christian charitable giving is frequently regarded with skepticism in FIRE/Mustachian land, and you didn't ask for Christian charitable giving philosophy.

If you're interested, I'd point you to "How to Be Rich" by Andy Stanley, which is my favorite entry point to Christian giving philosophy.

boarder42

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Re: Charitable giving?
« Reply #10 on: September 04, 2018, 05:43:47 PM »
How have you never looked into a donor advised fund if you're giving at that level of 10%. You're doing a disservice to yourself and your charity. Why give the govt more money than you have to?

englishteacheralex

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Re: Charitable giving?
« Reply #11 on: September 04, 2018, 06:52:28 PM »
How have you never looked into a donor advised fund if you're giving at that level of 10%. You're doing a disservice to yourself and your charity. Why give the govt more money than you have to?

I was under the impression that...a donor advised fund...I'll look into it more. But a couple of years ago when I first heard of the concept I read a bunch about it and decided it didn't align with my personal philosophy of giving, which is not as obsessed with efficiency as Mustachian giving. However, I could be wrong and have forgotten exactly how it works.

But don't you have to set up a fund first? And it's the interest, not the fund, that is donated? Something like that?

skuzuker28

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Re: Charitable giving?
« Reply #12 on: September 04, 2018, 07:52:57 PM »
How have you never looked into a donor advised fund if you're giving at that level of 10%. You're doing a disservice to yourself and your charity. Why give the govt more money than you have to?

I was under the impression that...a donor advised fund...I'll look into it more. But a couple of years ago when I first heard of the concept I read a bunch about it and decided it didn't align with my personal philosophy of giving, which is not as obsessed with efficiency as Mustachian giving. However, I could be wrong and have forgotten exactly how it works.

But don't you have to set up a fund first? And it's the interest, not the fund, that is donated? Something like that?

Yes you have to set it up, but grants are made from the income and corpus (the money you contribute).

Potential situations where they can be helpful:
1). You don't itemize your deductions, but you are close.  By using a DAF you can make two years of contributions in year 1, itemize, but still give the same steady stream of contributions to charities out of the DAF in year 2.  Then you can potentially itemize every other year.

2).  You receive a large chunk of taxable income in a year.  Make your charitable contribution to a DAF in the year of recognition to match up the deduction with the income, give you time to consider what charitable causes you with to support, and/or annuitize your giving.

3).  You have appreciated assets that you want to use for charitable purposes, but aren't easily handled by the charities you want to support.  Things like real estate, closely-held business interest, even stocks/bonds can be issues for smaller organizations.  By contributing those to the DAF you can use the resources and sophistication of the DAF administrator to liquidate those assets, get a deduction at Fair Market Value for the property, not recognize any gain on your return, and give the organizations you support cash.

Funds in the DAF can be invested as well, but I believe there is a holding period limitation like 5 years if I remember correctly.  In other words, if you contribute a rental property, lets say, then that property would need to be sold within 5 years of contribution. (not that you'd want to contribute rental real estate, as that can cause other tax issues in a DAF)

boarder42

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Re: Charitable giving?
« Reply #13 on: September 04, 2018, 08:18:48 PM »
Yes you have to set up the fund but you can donate the principal and interest it's all at your discression. I don't understand how being able to give more money to your charity or keep it in your pocket vs give it to the govt can be out of line with anyones theory of how charitable giving works. Take your marginal tax bracket for state and federal and add them together. Say its 20%. And you give 10k per year. That's an extra 2k you could give to someone vs the govt or you could keep to do something else with. If the charites you're choosing to give 10% of your money to are that important to you that you're giving them that much of your money why not learn a little do a tiny bit of work/ math and give them more. 20% isn't a small sum.

Unless you see the govt as part of your charitable giving and prefer to pay the maximum to them. Then by all means proceed 

skuzuker28

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Re: Charitable giving?
« Reply #14 on: September 04, 2018, 08:27:54 PM »
Yep, I'm a tax guy and I am talking to many of my clients about DAFs now with the limitation on the SALT deduction and the increased standard deduction.  If you are on the edge of itemizing, the tax savings can more than make up for the cost of the DAF.

boarder42

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Re: Charitable giving?
« Reply #15 on: September 04, 2018, 08:29:57 PM »
Yep, I'm a tax guy and I am talking to many of my clients about DAFs now with the limitation on the SALT deduction and the increased standard deduction.  If you are on the edge of itemizing, the tax savings can more than make up for the cost of the DAF.

The cost is very minimal. You act as if it's a large cost.

englishteacheralex

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Re: Charitable giving?
« Reply #16 on: September 05, 2018, 12:39:43 AM »
Hm. We give enough to itemize every year. Even now, with the new standard deduction. Our general goal is 15% of our gross. So...all we have is money? No real estate. How would this thing help decrease the taxes? I'm sincerely interested, no need to be snarky. I'm not an expert on taxation. Just figured all the charitable giving is pre-tax anyway, so how would some other arrangement make it even more pre-tax?

englishteacheralex

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Re: Charitable giving?
« Reply #17 on: September 05, 2018, 12:52:07 AM »
Ok, here's the post from Frugalwoods that first introduced me to the concept of the DAF (Donor Advised Fund).

https://www.frugalwoods.com/2017/12/20/how-we-donate-to-charities-like-billionaires/

My understanding is that you put a set amount of money into the DAF and then the DAF gives the money to the charity. Our philosophy of giving (I'll call it what it is--tithing--and then on top of that we give more because generosity is important to us) is that it's very important to give immediately as you have money, not in a lump sum at some point. The idea of putting a large lump sum into a DAF and then having the DAF distribute funds didn't really compute for me. What's the point, if you already are itemizing?

But I might very well be missing something. Is there a way to give 15% of our income every paycheck that is more tax advantaged but still accomplishes giving directly to the charity 15% of every paycheck?

englishteacheralex

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Re: Charitable giving?
« Reply #18 on: September 05, 2018, 01:04:24 AM »
Oh, another extremely comprehensive post from Frugalwoods about charitable giving: https://www.frugalwoods.com/2016/12/15/how-we-make-meaningful-and-tax-efficient-charitable-donations/ (super helpful for OP!)

Personally, I'm still not seeing the benefit of a DAF in our situation. We don't have a random $5000 to invest in a DAF through Fidelity. But like I said, I haven't thought this through. Maybe we could hack the DAF thing? Still not seeing how it makes it more tax-advantaged for us, though.

ditheca

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Re: Charitable giving?
« Reply #19 on: September 05, 2018, 01:32:10 AM »
I got a lot happier about charitable giving once I set a target $ amount.  I try to give an average of (CENSORED) dollars per month.  I true up at Christmastime.

It's amazing to just be able to hand 20 bucks to a beggar, 200 to a friend, or buy a computer for the in-laws without having it impact my bottom line.  Previously I mostly only donated to organized charities.

expatartist

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Re: Charitable giving?
« Reply #20 on: September 05, 2018, 04:26:44 AM »
My charitable giving has no formula. There's a local charity I support with small monthly auto donations, I've donated many household goods they can use, pay to go to charitable events, support people through Patreon and artists through buying their work.

boarder42

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Re: Charitable giving?
« Reply #21 on: September 05, 2018, 04:36:20 AM »
Oh, another extremely comprehensive post from Frugalwoods about charitable giving: https://www.frugalwoods.com/2016/12/15/how-we-make-meaningful-and-tax-efficient-charitable-donations/ (super helpful for OP!)

Personally, I'm still not seeing the benefit of a DAF in our situation. We don't have a random $5000 to invest in a DAF through Fidelity. But like I said, I haven't thought this through. Maybe we could hack the DAF thing? Still not seeing how it makes it more tax-advantaged for us, though.

You double or triple dip basically you would put 15% of your income in a daf and give 15% this year. Them next year you give out of your daf. This allows for you to take the standard deduction next year while getting tax breaks on more of your money.  Basically if you give 0 dollars where are you at when you itemize?  If you're not at 24k then you can capitalize with a daf. Salt is capped at 10k so mortgage interest would need to be 14k or more to make the strategy I described not worth it.

MrThatsDifferent

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Re: Charitable giving?
« Reply #22 on: September 05, 2018, 05:25:32 AM »
Iíve gone a slightly different direction with giving since I discovered Kiva. I love it. I feel like Iím helping people who are looking after themselves and Iím supporting them as they become more financially astute. The money you give gets paid back but I donít take it out, I just keep recycling it so I can keep helping people. I like knowing where the money is going directly.

Iím sick of these charities that have the leaders living lives of luxury and the idea of giving to churches makes me ill.

boarder42

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Re: Charitable giving?
« Reply #23 on: September 05, 2018, 05:50:25 AM »
Iíve gone a slightly different direction with giving since I discovered Kiva. I love it. I feel like Iím helping people who are looking after themselves and Iím supporting them as they become more financially astute. The money you give gets paid back but I donít take it out, I just keep recycling it so I can keep helping people. I like knowing where the money is going directly.

Iím sick of these charities that have the leaders living lives of luxury and the idea of giving to churches makes me ill.

100% on churches. The 501c3 status for these needs to be eliminated. The few that do actually operate like charities can file as what they are actually helping.

skuzuker28

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Re: Charitable giving?
« Reply #24 on: September 05, 2018, 06:16:36 AM »
Ok, here's the post from Frugalwoods that first introduced me to the concept of the DAF (Donor Advised Fund).

https://www.frugalwoods.com/2017/12/20/how-we-donate-to-charities-like-billionaires/

My understanding is that you put a set amount of money into the DAF and then the DAF gives the money to the charity. Our philosophy of giving (I'll call it what it is--tithing--and then on top of that we give more because generosity is important to us) is that it's very important to give immediately as you have money, not in a lump sum at some point. The idea of putting a large lump sum into a DAF and then having the DAF distribute funds didn't really compute for me. What's the point, if you already are itemizing?

But I might very well be missing something. Is there a way to give 15% of our income every paycheck that is more tax advantaged but still accomplishes giving directly to the charity 15% of every paycheck?

As boarder42 alluded to, you may be able to take the standard deduction every other year depending on what your mortgage interest deduction is.  I'll illustrate with an example.  Say you have a $10,000 SALT deduction, $10,000 in Mortgage Interest, and give $10,000 to charity every year.

This would mean you itemize to the tune of $30,000 every year, more than the standard deduction of $24,000.  Total deductions over 2 years: $60,000.

However, if you used a DAF in year 1 for your year 2 giving (while still giving your normal tithe directly) you would have $40,000 of deductions in year 1.  In year 2, you give out of the DAF and show $0 in charitable giving on your return so you take the standard deduction of $24,000.  Total deductions over 2 years: $64,000.

That extra $4,000 would save you $880 in taxes assuming you are in the 22% marginal rate.

Systems101

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Re: Charitable giving?
« Reply #25 on: September 05, 2018, 09:12:22 AM »
The idea of putting a large lump sum into a DAF and then having the DAF distribute funds didn't really compute for me. What's the point, if you already are itemizing?

Some people have very lumpy income.  One year, incremental rate is 33%, next year it's much lower.  If you can concentrate the giving in the 33% years, the value can add up quickly.  This is especially valuable if you expect your post-FIRE tax bracket to be very low (10%).

Some also have >0% capital gains taxes, and a DAF has the benefit of easily giving of appreciated securities.  If I give $100 from my paycheck, I get to deduct $100.  If I give $100 of stock, I deduct $100.  But I then invest the $100 from my paycheck that I didn't give back in the same security... meaning I have the exact same stock, but at a higher cost basis, and thus avoided future capital gains taxes.  They are equivalent in the present, but the stock gift clearly has higher value if I ever expect to pay capital gains taxes.  Potentially only has value if you are at a point where capital gains are >0%.  One of those first world problems ;)

Is there a way to give 15% of our income every paycheck that is more tax advantaged but still accomplishes giving directly to the charity 15% of every paycheck?

It depends on how much effort you want to make.  My DAF allows me to set up recurring donations.  So you could give every month... then occasionally just put your most appreciated securities into the DAF, perhaps every few months to reduce the effort.  The risk being the funds in the DAF also have an investment profile (often your choice), so you can get gains/losses in the DAF as well... which might reduce or increase how much you have to put in if you are adding things significantly in advance of the funds being sent out of the DAF.  But in general, with short periods between adding securities and giving, if you would have capital gains taxes, the avoided tax will dominate the overall value equation.


englishteacheralex

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Re: Charitable giving?
« Reply #26 on: September 05, 2018, 09:51:17 AM »
Ok, here's the post from Frugalwoods that first introduced me to the concept of the DAF (Donor Advised Fund).

https://www.frugalwoods.com/2017/12/20/how-we-donate-to-charities-like-billionaires/

My understanding is that you put a set amount of money into the DAF and then the DAF gives the money to the charity. Our philosophy of giving (I'll call it what it is--tithing--and then on top of that we give more because generosity is important to us) is that it's very important to give immediately as you have money, not in a lump sum at some point. The idea of putting a large lump sum into a DAF and then having the DAF distribute funds didn't really compute for me. What's the point, if you already are itemizing?

But I might very well be missing something. Is there a way to give 15% of our income every paycheck that is more tax advantaged but still accomplishes giving directly to the charity 15% of every paycheck?

As boarder42 alluded to, you may be able to take the standard deduction every other year depending on what your mortgage interest deduction is.  I'll illustrate with an example.  Say you have a $10,000 SALT deduction, $10,000 in Mortgage Interest, and give $10,000 to charity every year.

This would mean you itemize to the tune of $30,000 every year, more than the standard deduction of $24,000.  Total deductions over 2 years: $60,000.

However, if you used a DAF in year 1 for your year 2 giving (while still giving your normal tithe directly) you would have $40,000 of deductions in year 1.  In year 2, you give out of the DAF and show $0 in charitable giving on your return so you take the standard deduction of $24,000.  Total deductions over 2 years: $64,000.

That extra $4,000 would save you $880 in taxes assuming you are in the 22% marginal rate.

Thanks, that makes sense. And your numbers are pretty close to what our numbers actually are. But how would I use a DAF in year 1 for my year 2 giving? Would I put the contribution in the DAF instead of to the charity? Wouldn't that kind of suck to not be giving to the charity for a full year?

skuzuker28

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Re: Charitable giving?
« Reply #27 on: September 05, 2018, 10:13:17 AM »
Ok, here's the post from Frugalwoods that first introduced me to the concept of the DAF (Donor Advised Fund).

https://www.frugalwoods.com/2017/12/20/how-we-donate-to-charities-like-billionaires/

My understanding is that you put a set amount of money into the DAF and then the DAF gives the money to the charity. Our philosophy of giving (I'll call it what it is--tithing--and then on top of that we give more because generosity is important to us) is that it's very important to give immediately as you have money, not in a lump sum at some point. The idea of putting a large lump sum into a DAF and then having the DAF distribute funds didn't really compute for me. What's the point, if you already are itemizing?

But I might very well be missing something. Is there a way to give 15% of our income every paycheck that is more tax advantaged but still accomplishes giving directly to the charity 15% of every paycheck?

As boarder42 alluded to, you may be able to take the standard deduction every other year depending on what your mortgage interest deduction is.  I'll illustrate with an example.  Say you have a $10,000 SALT deduction, $10,000 in Mortgage Interest, and give $10,000 to charity every year.

This would mean you itemize to the tune of $30,000 every year, more than the standard deduction of $24,000.  Total deductions over 2 years: $60,000.

However, if you used a DAF in year 1 for your year 2 giving (while still giving your normal tithe directly) you would have $40,000 of deductions in year 1.  In year 2, you give out of the DAF and show $0 in charitable giving on your return so you take the standard deduction of $24,000.  Total deductions over 2 years: $64,000.

That extra $4,000 would save you $880 in taxes assuming you are in the 22% marginal rate.

Thanks, that makes sense. And your numbers are pretty close to what our numbers actually are. But how would I use a DAF in year 1 for my year 2 giving? Would I put the contribution in the DAF instead of to the charity? Wouldn't that kind of suck to not be giving to the charity for a full year?

In year 1 you could give your normal giving to the charity directly, then in addition contribute an equal amount to the DAF.  So in year one, you are doubling up on contributions, which may not be feasible for everyone.

Then year 2 you distribute grants out of the DAF rather than giving directly, and save up what you WOULD be giving outside of the DAF.  Year 3 you make a lump-sum contribution of that savings to the DAF, and give directly your normal contribution, then 4 distribute out of the DAF and save, and so on.

You can also just run everything through the DAF to simplify reporting requirements.  If you give to multiple charitable causes this can be a huge benefit, as there would be less paperwork to keep track of for tax purposes.

elliha

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Re: Charitable giving?
« Reply #28 on: September 05, 2018, 10:57:17 AM »
I do consider taxes as part of my charity. My money is used for other people's benefit and I expect no thank you nor do I sit and watch them get the stuff and get any satisfaction from seeing this happen. I will most likely pay more than I get from it and I think that is the way it should be.

I also give money to my church and the many things they provide and in particular I try to be extra generous contributing to the programs that make sure to help families with little money as this is important to me.

Other than that I try to be charitable towards people I meet in person. I give stuff I don't need through freecycle rather than sell it even though I might get some money that way. I rather see people getting a good thing for free than me selling it even if I would give the money for charity. I also give money that is needed to people directly if I can afford it. I would rather like to expand this section of giving.