In the United States, the federal tax deduction for charitable giving was created in 1917. The idea was that non-profit organizations provide tangible benefits to society, and donations should be encouraged. The tax deduction effectively lowers the cost of donations to worthy causes through a public subsidy.
Our tax system is in need of reform so that loopholes like the ones mentioned in the article are closed to make sure the real intent of the law is realized.
It's still possible for ordinary people to achieve a tax benefit through charitable giving. That is, if you are retired and have a significant amount of money in an IRA. In that case directed distributions aren't taxed. So for example if your Required Minimum Distribution is $25,000 and you geve $7,500 in directed distributors, you pay taxes on the difference - in this case $17,500 - and can still take the standard deduction. Moreover, the reduced amount is used to determine how much of your Social Security benefit is taxed; a further saving. If you are 70 1/2 or older, It's a no-brainer.
The age for RMDs has recently been raised by a few years - but once you get there Qualified Charitable Distributions (QCDs) are a great way to leverage charitable giving.
Thanks Judd for all you do to keep us informed!! And for highlighting such a wonderful organization which I hadn’t heard about. Just donated to this very worthy cause. Now if only the GOP faction of Congress & state legislatures would actually put their “Christian values” into practice & work to pass legislation to meaningfully help those in poverty.
Judd, great reporting as always, but you also did a great job explaining this in a way anyone could understand. I feel like in the USA, rich people are like "I really don't wanna pay taxes" and our government is like "Okay."
This is so appropriate on Giving Tuesday. I first learned of this, while I worked for a family foundation, from seeing how local philanthropists used a donor-advised fund to support the issues they care about.
A private school that charges $50,000 a year in tuition and is mostly available to wealthy people is a charity in this system. A church in a neighborhood with million-dollar homes that has primarily wealthy parishioners is a charity. They are giving to themselves and shortchanging the public.
The tax code does not distinguish whether someone gets a tax deduction by the zip code of the charity. Giving to ALL churches, mosques, synagogues, and temples gets the same treatment.
And because a religious organization is located in a particular zip code doesn't say anything about the work it is doing and who is benefitting.
Why single out giving money away to support hospitals, schools, and other charities as a "bad" deduction? Would you prefer that donors not make gifts and that charitable organizations founder?
I would prefer that our government support hospitals, schools, and our needs as an Americans. If Greece can do single-payer, why can't the US? The underlying problem may be capitalism.
I often mention Ms Scott and tell people to "Donate like a girl". Take a look at Tom Brady's idea of charitable giving with the Kennedy-run charity to which he lends his name (and charges them for it).
Brady shilled for crypto. Too bad for him he got sued for illegally selling the equivalent of securities without disclosing his financial conflict of interest.
I thought the act of giving was supposed to be its own reward. Evidently, if you're rich, it comes with the opportunity for a sizable tax break as well. How magnanimous.
While it is true that giving is its own reward, in the context of the US tax system it also allows us the possibility of opposing policies of which we disapprove. For instances the UN agencies UNICEF and UNHCR, which due to GOP enacted legislation the US does not support. Or Doctors Without Borders, whose hospitals are favorite targets of the US and Israeli air forces.
Those who take the standard deduction are getting a larger tax deduction than they would if they itemized. Otherwise, they would itemize their returns, including charitable contributions.
I find that manipulation of “tax deductible” money earmarked for Churches and the NRA is especially reprehensible. Churches and their groups, like Christian Nationalists should lose their tax exemption the moment they breach the separation of church and State. Period.
Remember the mortgage- banking fiasco of 2007? It wasn’t just lumping real estate into junk, high risk stocks--there were individuals who claimed to represent “churches” (simply download a form declaring yourself a church leader), then taking out “home improvement loans” (piling debt on the mortgage) without actually using the money to add value to the property . . . Plus, renting said properties for more tax-deductible skimming. All of this was made possible by the convoluted tax system.
Another gimmick is similar to the one used by the NRA: Declare your entity as educational to avoid taxes. I believe tRump got caught doing this; the NRA continues to utilize this bogus exemption.
If I were an accountant, I’m sure I could describe any number of BS schemes to avoid taxes in an “oh, so, charitable way.” The Koch-designed manipulations would be fertile proving ground and one more reason there should be an investigation of the Organized Crime Syndicate aka the RNC.
Most people should stop agonizing over "is this deductible?" and give according to their values and understanding. The "non-profit" designation is meaningless in most contexts.
This is a very important issue! Thank you for highlighting it. Of course, this follows the trend of neoliberal privatization of everything and reducing everything to individual choice (for those with enough money to choose), but I think that politicians need to shift their thinking to implement policies that encourage the most people possible to engage with their communities on a local or national scale. This is the only way we can build a strong democracy.
Nonprofit Quarterly has reported on a lot of what you mentioned and they noted a decline in individual giving last year which follows a long-term downward trend of individual giving (https://nonprofitquarterly.org/why-philanthropic-giving-declined-in-2022/). This is likely both a symptom and a cause of people being disconnected from their communities and disillusioned with public institutions. The decline in individual giving is unfortunate because it contributes to the further concentration of philanthropy, with fewer and fewer people having influence over the direction of nonprofits and foundation giving. Foundations already function in an antidemocratic way, and a reduction in smaller donor giving will only reduce the small influence such individuals have, leaving every choice to the wealthy (https://nonprofitquarterly.org/to-support-democracy-foundations-must-practice-democracy/)
This report immediately brings to mind the conservative organization “Donors Trust” which is one of the most prominent funnels for MAGA money providers who are actively working to ensure that Project 2025 succeeds.
The author is wrong about gifts of assets other than cash and misleading about donor advised funds.
Federal law changed in 1986 for gifts of non cash assets. Since then, first, a current, independent, qualified appraisal of the asset to establish its value is required if the donor wants a tax deduction. The donor pays for this appraisal. Second, the asset must be related to the charitable purpose of the organization to which it is being donated. So, for example, art cannot be given to a donor advised fund (DAF) because the DAF is neither a museum nor a school which uses works of art for educational purposes.
Cryptocurrency is treated like other financial assets, such as stocks. By law, the value of the gift is set as the mean price on the legal date of the gift.
Regarding donors' use of DAFs, it is not necessarily very affluent people who benefit from this opportunity but rather those whose income is highly variable. An example is a small business owner who is charitably minded may have an exceptionally good year. They don't immediately know where to make their gifts, but want their extra profit available for this purpose. They set up a DAF with a community foundation or a firm such as Fidelity so that they can take the deduction in the year the profit was made but then have more time to make thoughtful decisions about where their gifts will go.
A side note: Fidelity first offered DAFs because the then-chairman was highly philanthropic himself. He regarded this as a way to encourage those who invested with Fidelity to be more charitable as well.
Community foundations offer DAFs to attract donors to give back to the community in addition to other charitable purposes.
Please fact check these articles before printing them.
I can vouch for the last statement. I created a DAF this year because I got an early retirement payout that put me in a high tax bracket. I chose to open my DAF with the local community fund, even thought the management fee is higher than Fidelity’s, because the community fund promotes additional giving in the city.
There is certainly room for improvement in DAF regulation. Requiring a 5% annual payout would be a good start.
Sorry, I was responding to, “Community foundations offer DAFs to attract donors to give back to the community in addition to other charitable purposes.” I agree with you about the statement after that, which is why I think I ignored it completely.
And, please, everyone, tell us who or what you are referring to....e.g., "The author is wrong about gifts...."--the author of which article. I assume you do not mean Judd; maybe you mean "non profit quarterly link"?
40 year career in higher education advancement, primarily as chief development officer or chief advancement officer, serving both public and independent institutions.
Please check the tax code or speak with a community foundation representative about DAFs if you wish to do your own fact checking.
Isn't the proof that issues exist in the outcomes? Big money is sitting, doing nothing while missions languish. The impetus for these constructs may have been pure, but the unintended consequences are unhelpful to creating a better world.
As another commenter mentioned, it's not enough to look at what we hope people do, but the overall effect these policies have. I have relatives who use a Donor Advised Fund to be able to itemize their taxes with a large donation every 5 years because with the new deduction they wouldn't be able to in a normal year. However it is completely up to them whether they disburse those donations to those in need, or hoard them for as long as they'd like. Just because you can conceive of a way this setup can benefit donors and recipients, doesn't mean it's ideal, and it doesn't mean it overall has a positive effect.
When it comes to money....! Looks like we could learn a great deal from how Mackenzie Scott achieves her charitable intentions. Is there any public information on how she went about her giving?
It appears that the Hiltons and Musk engrave how to be selfish as subtitles in their lives...no matter what!
There's been a little bit of coverage of Scott's giving, but she doesn't really want publicity. Recipients have been surprised at getting the money. She puts no strings on it, gives to some HBCUs on the premise that they know best how to use the money for what's most needed.
Our tax system is in need of reform so that loopholes like the ones mentioned in the article are closed to make sure the real intent of the law is realized.
Please see factual corrections given in subsequent comment.
Won't make any difference. It's already too late to stop the collapse of civilisation due to ignoring the climate catastrophe for forty years
It's still possible for ordinary people to achieve a tax benefit through charitable giving. That is, if you are retired and have a significant amount of money in an IRA. In that case directed distributions aren't taxed. So for example if your Required Minimum Distribution is $25,000 and you geve $7,500 in directed distributors, you pay taxes on the difference - in this case $17,500 - and can still take the standard deduction. Moreover, the reduced amount is used to determine how much of your Social Security benefit is taxed; a further saving. If you are 70 1/2 or older, It's a no-brainer.
Thank you for this reminder. I am closing in on 70.5.
The age for RMDs has recently been raised by a few years - but once you get there Qualified Charitable Distributions (QCDs) are a great way to leverage charitable giving.
73
Thanks Judd for all you do to keep us informed!! And for highlighting such a wonderful organization which I hadn’t heard about. Just donated to this very worthy cause. Now if only the GOP faction of Congress & state legislatures would actually put their “Christian values” into practice & work to pass legislation to meaningfully help those in poverty.
Judd, great reporting as always, but you also did a great job explaining this in a way anyone could understand. I feel like in the USA, rich people are like "I really don't wanna pay taxes" and our government is like "Okay."
This is so appropriate on Giving Tuesday. I first learned of this, while I worked for a family foundation, from seeing how local philanthropists used a donor-advised fund to support the issues they care about.
What is wrong with local philanthropists supporting issues they care about, whether via the mechanism of a family foundation or individual giving?
The only correction in the system that is needed is the percentage of foundation assets which should be distributed annually.
A private school that charges $50,000 a year in tuition and is mostly available to wealthy people is a charity in this system. A church in a neighborhood with million-dollar homes that has primarily wealthy parishioners is a charity. They are giving to themselves and shortchanging the public.
The tax code does not distinguish whether someone gets a tax deduction by the zip code of the charity. Giving to ALL churches, mosques, synagogues, and temples gets the same treatment.
And because a religious organization is located in a particular zip code doesn't say anything about the work it is doing and who is benefitting.
A religious organization already gets enough breaks by being exempt from paying taxes, especially those who are pushing a political agenda.
Charitable giving is a tax write-off which is only available to some.
All tax deductions are only available to some.
Why single out giving money away to support hospitals, schools, and other charities as a "bad" deduction? Would you prefer that donors not make gifts and that charitable organizations founder?
I would prefer that our government support hospitals, schools, and our needs as an Americans. If Greece can do single-payer, why can't the US? The underlying problem may be capitalism.
NewsFlash! Snakes don't care about you. Just in time for Xmas too!
Seriously, this is good report Judd.
PI always has information you can actually point to and use.
Talk about welfare queens... The uber rich are morally bankrupt. Eat the rich, indeed. You'd need a lot of tenderizer and sugar to digest them.
Let Musk eat cake. Tax his ass.
I often mention Ms Scott and tell people to "Donate like a girl". Take a look at Tom Brady's idea of charitable giving with the Kennedy-run charity to which he lends his name (and charges them for it).
Brady shilled for crypto. Too bad for him he got sued for illegally selling the equivalent of securities without disclosing his financial conflict of interest.
I thought the act of giving was supposed to be its own reward. Evidently, if you're rich, it comes with the opportunity for a sizable tax break as well. How magnanimous.
While it is true that giving is its own reward, in the context of the US tax system it also allows us the possibility of opposing policies of which we disapprove. For instances the UN agencies UNICEF and UNHCR, which due to GOP enacted legislation the US does not support. Or Doctors Without Borders, whose hospitals are favorite targets of the US and Israeli air forces.
Those who take the standard deduction are getting a larger tax deduction than they would if they itemized. Otherwise, they would itemize their returns, including charitable contributions.
So, who is the tax code favoring?
I find that manipulation of “tax deductible” money earmarked for Churches and the NRA is especially reprehensible. Churches and their groups, like Christian Nationalists should lose their tax exemption the moment they breach the separation of church and State. Period.
Remember the mortgage- banking fiasco of 2007? It wasn’t just lumping real estate into junk, high risk stocks--there were individuals who claimed to represent “churches” (simply download a form declaring yourself a church leader), then taking out “home improvement loans” (piling debt on the mortgage) without actually using the money to add value to the property . . . Plus, renting said properties for more tax-deductible skimming. All of this was made possible by the convoluted tax system.
Another gimmick is similar to the one used by the NRA: Declare your entity as educational to avoid taxes. I believe tRump got caught doing this; the NRA continues to utilize this bogus exemption.
If I were an accountant, I’m sure I could describe any number of BS schemes to avoid taxes in an “oh, so, charitable way.” The Koch-designed manipulations would be fertile proving ground and one more reason there should be an investigation of the Organized Crime Syndicate aka the RNC.
Most people should stop agonizing over "is this deductible?" and give according to their values and understanding. The "non-profit" designation is meaningless in most contexts.
This is a very important issue! Thank you for highlighting it. Of course, this follows the trend of neoliberal privatization of everything and reducing everything to individual choice (for those with enough money to choose), but I think that politicians need to shift their thinking to implement policies that encourage the most people possible to engage with their communities on a local or national scale. This is the only way we can build a strong democracy.
Nonprofit Quarterly has reported on a lot of what you mentioned and they noted a decline in individual giving last year which follows a long-term downward trend of individual giving (https://nonprofitquarterly.org/why-philanthropic-giving-declined-in-2022/). This is likely both a symptom and a cause of people being disconnected from their communities and disillusioned with public institutions. The decline in individual giving is unfortunate because it contributes to the further concentration of philanthropy, with fewer and fewer people having influence over the direction of nonprofits and foundation giving. Foundations already function in an antidemocratic way, and a reduction in smaller donor giving will only reduce the small influence such individuals have, leaving every choice to the wealthy (https://nonprofitquarterly.org/to-support-democracy-foundations-must-practice-democracy/)
Ironically, the downward trend in giving is directly linked to the advent of the standardized deduction.
People are self interested in every tax bracket.
WOW I have been so naive! Thank you for this very timely information!
This report immediately brings to mind the conservative organization “Donors Trust” which is one of the most prominent funnels for MAGA money providers who are actively working to ensure that Project 2025 succeeds.
What a joke if it has the 501c(3) designation.
Donors Trust is an American nonprofit donor-advised fund. See: https://en.wikipedia.org/wiki/Donors_Trust
Whine, whine, whine while 90% of these donor trusts support Democrat MALA politics.
Make America Liberal Again, nice!
By the way what is your evidence that "90% of these donor trusts support Democrat MALA politics?"
Spoiler alert: there isn't any
The author is wrong about gifts of assets other than cash and misleading about donor advised funds.
Federal law changed in 1986 for gifts of non cash assets. Since then, first, a current, independent, qualified appraisal of the asset to establish its value is required if the donor wants a tax deduction. The donor pays for this appraisal. Second, the asset must be related to the charitable purpose of the organization to which it is being donated. So, for example, art cannot be given to a donor advised fund (DAF) because the DAF is neither a museum nor a school which uses works of art for educational purposes.
Cryptocurrency is treated like other financial assets, such as stocks. By law, the value of the gift is set as the mean price on the legal date of the gift.
Regarding donors' use of DAFs, it is not necessarily very affluent people who benefit from this opportunity but rather those whose income is highly variable. An example is a small business owner who is charitably minded may have an exceptionally good year. They don't immediately know where to make their gifts, but want their extra profit available for this purpose. They set up a DAF with a community foundation or a firm such as Fidelity so that they can take the deduction in the year the profit was made but then have more time to make thoughtful decisions about where their gifts will go.
A side note: Fidelity first offered DAFs because the then-chairman was highly philanthropic himself. He regarded this as a way to encourage those who invested with Fidelity to be more charitable as well.
Community foundations offer DAFs to attract donors to give back to the community in addition to other charitable purposes.
Please fact check these articles before printing them.
Sally, perhaps you should state your credentials in making these assertions, particularly your last statement.
I can vouch for the last statement. I created a DAF this year because I got an early retirement payout that put me in a high tax bracket. I chose to open my DAF with the local community fund, even thought the management fee is higher than Fidelity’s, because the community fund promotes additional giving in the city.
There is certainly room for improvement in DAF regulation. Requiring a 5% annual payout would be a good start.
The last statement I was referring to is:
“Please fact check these articles before printing them.”
This is clearly passive-aggressive and I don’t know that it was meant to be.
Sorry, I was responding to, “Community foundations offer DAFs to attract donors to give back to the community in addition to other charitable purposes.” I agree with you about the statement after that, which is why I think I ignored it completely.
And, please, everyone, tell us who or what you are referring to....e.g., "The author is wrong about gifts...."--the author of which article. I assume you do not mean Judd; maybe you mean "non profit quarterly link"?
I assumed Judd.
40 year career in higher education advancement, primarily as chief development officer or chief advancement officer, serving both public and independent institutions.
Please check the tax code or speak with a community foundation representative about DAFs if you wish to do your own fact checking.
Isn't the proof that issues exist in the outcomes? Big money is sitting, doing nothing while missions languish. The impetus for these constructs may have been pure, but the unintended consequences are unhelpful to creating a better world.
A law existing does not mean it's being enforced. Anti-trust laws have existed since the 1800s, but they go through periods of being enforced and not. ProPublica recently wrote about lack of IRS enforcement for people donating to their own private foundations and making false or misleading claims about those donations (https://www.propublica.org/article/how-private-nonprofits-ultrawealthy-tax-deductions-museums-foundation-art).
As another commenter mentioned, it's not enough to look at what we hope people do, but the overall effect these policies have. I have relatives who use a Donor Advised Fund to be able to itemize their taxes with a large donation every 5 years because with the new deduction they wouldn't be able to in a normal year. However it is completely up to them whether they disburse those donations to those in need, or hoard them for as long as they'd like. Just because you can conceive of a way this setup can benefit donors and recipients, doesn't mean it's ideal, and it doesn't mean it overall has a positive effect.
A very good point.
When it comes to money....! Looks like we could learn a great deal from how Mackenzie Scott achieves her charitable intentions. Is there any public information on how she went about her giving?
It appears that the Hiltons and Musk engrave how to be selfish as subtitles in their lives...no matter what!
There's been a little bit of coverage of Scott's giving, but she doesn't really want publicity. Recipients have been surprised at getting the money. She puts no strings on it, gives to some HBCUs on the premise that they know best how to use the money for what's most needed.