When I started my firm in 2016, our household income went to $0.
Being the financial planner I am, my mind went immediately from “we have no income” to “oooh, what kind of tax strategies can I take advantage of this year?” One of the decisions we made was around charitable contributions.
I realized that I wasn’t going to get much tax benefit for donating to charity no matter what I did. My income was just too low. Deductions weren’t worth much of anything to me.
So, I thought, hey, as long as my income is low, I might as well donate to non-tax-deductible causes that I care about instead of to tax-deductible charities. I can always support the tax-deductible charities in years when I get more tax benefit from it.
In writing this blog post, I found it hard to keep the names around different kinds of charities right. I’m certainly no charity expert, but, basically, “charities” can be a 501(c)3 or a 501(c)4. Contributions to a 501(c)3 are tax-deductible. Contributions to a 501(c)4 are not.
Wrapped up in that is that 501(c)3 charities are limited in their activities. They cannot lobby, engage in “political campaign intervention,” and do other political…stuff. 501(c)4 charities can.
If you don’t know what I’m talking about, then here are some examples:
- Especially in light of the recent mistreatment of American citizens of Iranian descent at the border, supporting the American Civil Liberties Union might call to you. The ACLU is a 501(c)4 charity. Even though it’s a non-profit charity, you don’t get a tax break for supporting the ACLU.
- Or let’s say you’re concerned about climate change and environmental causes in general. You could give to the Sierra Club Foundation (501(c)3) and get a tax deduction. Or you could give to the Sierra Club (501(c)4). They explain why you can’t get a tax deduction on the website: “[Donations] support our effective, citizen-based advocacy and lobbying efforts.”
- Or maybe you want to support a particular political candidate or party. Not tax deductible, but maybe it’d be more effective in changing the world for the better.
We financial planners tend to get tunnel vision (“let’s put tax considerations first! And everything else second!”). But before you fall into our trap, ask yourself:
Is the tax break what you’re after? Or are you motivated instead by the desire to help people retain their civil rights (or fight climate change, or get that person elected to office)?
My guess is that you’re motivated primarily by your desire to change and improve your community and your world. So, make that the guiding light. If that means forgoing a tax deduction, WHO CARES.
In 2020, I’m going to try to focus on giving to charity, on sharing our abundance, more explicitly, both in terms of how we here at Flow work with our clients, and also in what I write about in this blog. You know how the more times you hear or read about something, the more normal it becomes? Advertisers and politicians use that for their own self-serving purposes. But in this case, it has the potential for encouraging healthy, loving, good behavior.
I would love for it to become “that’s just what you do!” when it comes to giving away our money to causes and people that need it more than we do. I love the idea of the 10% tithe…unfortunately, most people (myself included!) are far less generous.
I also hope that the knowledge I’ve gathered through personal experience and through observing clients’ charitable experiences might actually give you just that specific tidbit you need to make a change to your charitable contribution.
If you want to share your abundance with people and causes in greater need than you, and you want help figuring out the most effective way to do it, please reach out to me at firstname.lastname@example.org or schedule a free consultation.
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Disclaimer: This article is provided for 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. I 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 Meg Bartelt, and all rights are reserved. Read the full Disclaimer.