Flow FP's Block Woman launches in AirBnB's Apollo 11 rocket.

If you’re staring at a windfall from Airbnb’s upcoming IPO, let’s take a moment to think about giving some of it away.

There have always been good reasons to give money away: a sense of moral obligation or fairness, the fact that giving money away actually makes you happier. Nowadays the breadth and depth of the need out there is more profound than we have witnessed in my lifetime. If ever there were a time to think about giving away some of a lucky windfall, this is it.

That said, I don’t know you. I don’t know your situation. If you need to keep all the money for yourself or your family, then keep it. This post is directed at those who don’t need all this money.

If you’re anything like most of my clients, it’s easy to think about giving money away. It’s hard to go from that to actually doing it. Maybe you end up doing nothing because that hurdle is too big.

I hope this blog post can help guide you through the process of figuring out just how many dollars to donate, and how to do it. The fewer the mental hurdles you have, the more likely you are to donate.

Giving money away, to outright charities or political causes or individual people, is all part of a larger personal financial strategy. And I will try to acknowledge that throughout this blog post.

Giving Away Money And How It Affects Your Long-Term Security

Here’s an interesting and perhaps unintuitive notion to keep in mind when thinking about making big charitable donations:

I have run hundreds of long-term financial projections for clients. On the basis of those projections, I can tell you that a one-time financial act (income or expense) has way less impact on your long-term finances than your behavior month in and month out, year in and year out.

Why do I bring that up? Because

whether or not you consistently save to your 401(k) or spend $1000 more or less per month is much more influential than your decision to donate $1000 or $20,000 to charity one year.

So, if you otherwise have good financial habits (spending below your means, saving consistently, etc.), I would encourage you to worry less about a big one-time charitable donation.

Obviously, this all has to be considered in the proper context. If your net worth is currently $200k, and you’re coming into $1M from the Airbnb IPO. Then giving away $1M will have tremendous long-term effects.

I find that a lot of clients are afraid to give away money because “what if?!” they need it later. It feels like people want to be guaranteed that they’ll be okay financially later on in life before they are comfortable giving away significant money now.

If you are like most of my clients, you are smart, well educated, well employed, with strong professional networks and skills. You are resilient in more ways than the balance of your investment account. I can’t guarantee anything, but my guess is You Will Be Fine, even if you do give away a lot of money this year. Life is simply too unknowable to think you can nail down financial security when you’re in your 20s, 30s, 40s, or 50s.

Get Clear on Your Values

It’s tempting to start this conversation with tactics.

How much money? Which charity? Cash or my company stock? Monthly or one lump sum?

The fact is that you are always going to be financially better off if you keep all your money to yourself. (Any toddler can tell you that.) So, the decision to donate needs to come from a more profound place. It needs to be motivated by the values you hold dear.

What causes have you been involved with already in your life? What causes pull at your heart strings now? What fears or hopes do you have? Which causes do you think will bring about change most effectively?

Only once you have some clarity there should you move on to the numbers and logistics.

The Big Question: How Much Should You Give?

This question plagues most of my clients. And honestly it’s been an intellectually and philosophically interesting journey for me to figure out how to even think about “how much is enough but not too much?” Clients want to give money, but they also don’t want to endanger their own financial situation in so doing.

In a mathematically ideal world, you would know:

  1. Exactly what you want to do with your life in each of your remaining years on this earth
  2. Exactly how much money you need for each of those things
  3. Exactly how the stock market (and therefore your portfolio) is going to perform
  4. Exactly how much money you’re going to earn for your remaining working years

If you had all that information, then it’d simply be a matter of math to figure out how much money you could give away and not harm yourself or endanger your goals.

In this here real world, though, you don’t know any of those things. You don’t just “not know” any of those things, you don’t have the foggiest idea of any of those things more than a few years out (and the stock market, not even that). The younger you are, the more ludicrous it gets to think you could predict anything out to and through retirement.

When I have a 35-year-old client ask me “How much can I afford to give?” I often say, “You could give away everything and still turn out fine. Because lots of people don’t start saving until they’re 35, and they’ll be fine in the long run.”

It’s crazy to think about, but it’s really true! I have clients who started saving well when they were 24. I have clients who didn’t pay much attention to it until they were 44 and then really buckled down. And they are all on track to be just fine, thank you very much.

So, if “everything” is the upper limit, how do you choose how much you want to give away?

The hard limit has to be:

Will giving away this money make it impossible or less likely for me to achieve that goal I really wanted?

“Will I not be able to buy the home in the timeframe I wanted? Is delaying early retirement unacceptable?” That’s where clarity around your values comes in: If supporting people or causes is more important than owning your own home, then you can prioritize giving money away more than protecting the home-buying goal.

The goal time frame matters. Goals that you have over the next few years will be easy to think about in this way. If you want to buy a home in 6 months, and you need a $200k downpayment, well, then, you’d better not dip into that $200k to donate if you really want to buy so soon. But the further out your goal gets (especially this “retirement” I hear so many clients speak of), the more time you have to “make up” for any money you give away.

Arbitrary but Reasonable Ways to Calculate a Dollar Amount

A dirty little secret of personal finance and investing: “Arbitrary but reasonable” describes many a fine personal-finance decision. It’s not a science.

Why? Because most of what we deal with is The Future. And what’s the one thing we can say definitively about the future? That we don’t know a damn thing about what’s going to happen. So, to a large extent, hard-and-fast rules and exacting precision are foolish.

When it comes to figuring out how much money you can safely give away then, try these approaches:

  • Give away a certain % of your income every year. Many religions have long done this.
  • Give away a certain % of your investment portfolio or overall net worth every year.
  • Pledge to give away a certain % of any future windfall (like, oh, I don’t know, Airbnb’s IPO).

    This fits in nicely with a lot of behavioral finance research about how to get people to save more money. Turns out that asking them to pledge to save future dollars is way more effective than asking them to increase current savings. In the same way, pledging to donate future dollars is likely more effective than asking yourself to donate dollars you already have. You might have heard of the Founders Pledge, which looks to do exactly this.

Overcome Inertia to Actually Donate Some Money

Honestly, I have seen more well-intentioned people give nothing because they can’t decide amongst the paralyzingly bottomless list of causes that deserve support, and because they can’t figure out exactly how much to give.

Just. Get. Started.

$50/month to a single cause is infinitely better than stewing in your own analysis paralysis doing nothing.

Some low-key ways of getting started:

  • Pick one cause. Go to their website and set up one monthly recurring donation on your credit card. Hey, maybe next month, you can choose another. Or not! Just do one right now.
  • If your employer matches charitable donations (as many tech companies do nowadays), go into your company intranet and set up your paycheck to donate $50/paycheck to a charity on the approved list.
  • If you want to be the kind of person to give away 10% of your income, but that scares you, give away 1% this year. And next year bump it up to 2%.

Learn and adjust as you go.

Taxes. Important but Not All Important.

First and foremost, let me just say: many causes (and people!) worth supporting aren’t tax-deductible charities, and you can’t get any sort of tax benefit from donating to them. WHO CARES. Help anyway.

I wanted to get that out of the way, because now, of course, I’m going to flex my financial-nerd muscles to talk with you about maximizing the tax benefit of your charitable donations.

One important thing to keep in mind in these here times of boundless need:

You must give money to a 501(c)3 charity in order to have a chance of getting a tax benefit.

For example, the ACLU is not a 501(c)3. My local food bank is. I give to both. The charity’s website should make it clear that they’re a 501(c)3 and whether or not contributions are tax deductible.

Optimize Your Tax Deduction

Here are the three most powerful techniques for improving the tax benefit you get from donating to charity:

1. Donate in high-income years.
If Airbnb IPOs this year, there’s a good chance your RSUs will vest (become income) this year. Making this year a Very High-Income Year for you, indeed.

Why does this matter? Because high income = high tax rate, and every dollar donated to charity saves you that really high tax rate. If your tax rate is 22%, then $100 to charity saves you $22 in taxes. If your tax rate is 37%, then $100 to charity saves you $37.

If your RSUs end up vesting in 2021, or if you end up selling a lot of stock in 2021 or exercising a lot of NQSOs in 2021—all ways to gin up a really hefty income and tax rate—then try to donate that year.

Keep in mind that if your RSUs vest in 2020, but you’re not allowed to sell or donate any shares until lockup expires in 2021 (and we won’t know definitively that until the S-1 is made public), you might not actually have the money to make big charitable donations in 2020. That’d suck, but, it is what it is. (That phrase has simply been ruined, hasn’t it been?)

2. Donate “appreciated stock,” not cash.
I’ve written before about how it’s better pretty much all around tax-wise to donate appreciated stock instead of cash. Do recognize that administrative-pain-in-the-ass-wise, it’s easier to donate cash. And not all charities take appreciated stock.

When it comes to Airbnb, “appreciated stock” does not mean your RSUs. They likely will not appreciate much by the time you can do anything with them (if this unfolds anything like Uber, your RSUs will actually be at a loss by the time you can sell or donate them), you won’t have held them for the requisite 1 year, and they’re going to be your most tax-optimized way to reduce your concentration to Airbnb stock, so you’ll reserve them for selling.

Most likely the “appreciated stock” you’ll want to donate is long-held stock you got from exercising options at least a year prior. You need to have held the stock for at least a full year, and it needs to have grown (ideally a lot) from the cost at which you acquired it. If you exercised your options years ago at Airbnb, you’ve likely just satisfied both of those criteria.

3. “Bunch” several years of contributions into one year.
Ever since the major tax law overhaul at the end of 2017, it’s a lot harder to get a tax deduction for charitable donations. When you prepare your taxes, you can choose to itemize your deductions (and charitable donations count here) or take the standard deduction. The tax law raised the standard deduction by a lot, so many fewer people get any benefit from itemizing anymore. If you have a mortgage, you likely itemize. Other than that, probably not.

[Charities were not, by the way, at all happy about this change. Donations to charities fell noticeably.]

But there’s still a way to maximize your tax benefits from deductions, if you have the money to make multiple years’ contributions in one year. The technique is called “bunching”:

Instead of donating, say, $10k each year, and always taking the standard deduction because it’s still higher than $10k ($12k for singles, $24k for couples), you donate $30k in one year, and then nothing for the next two years. That way,

  • in year 1, you deduct $30k in itemized deductions
  • in year 2, you deduct the standard deduction (let’s say $12k)
  • In year 3, you deduct $12k again
  • By bunching, a single person gets to deduct $54k.
  • Without bunching, you’d deduct $36k (3 years of the $12k standard deduction).
  • At a marginal tax rate of 35%, bunching saved you ($54k-$36k) = $18k x 35% = $6300 in taxes.

Donating directly to charities versus a DAF. If you already know exactly which charities you want to support, great! Go for it and give the money directly to the charity. If you end up deciding to donate a lot of money (in stock or cash) to charity this year for tax purposes (as you’re more likely to do in a year when an IPO windfall happens), but you don’t yet know which charities to support, then consider donating to a Donor Advised Fund. DAFs can give you the tax break immediately and allow you to take your time in actually doling out money to charities.

Do keep in mind that DAF’s are earning a reputation for being a way for wealthy people to get tax breaks on charitable donations…but never actually distribute the money to charities. So, if you do open and fund a DAF, please do also think about when and how you’re going to get that money to charities that deserve it.

I promise I’ll get around to talking about the nitty gritty of RSUs and stock options and a stock sales strategy in upcoming blog posts. But I hope you agree that first thinking about how we can use our luck and privilege in a time of such desperate need was worth our time.

Other posts in this “Airbnb is going public” series:

1. Airbnb Is Going Public. Time to Create a (Flexible) Strategy.

3. Airbnb Is Going Public. What Should I Do with my RSUs?

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Disclaimer: This article is provided for educational, general information, and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Flow Financial Planning, LLC, and all rights are reserved. Read the full Disclaimer.

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