getting the most from your charitable donations: double word score!

The timely use of “double word score” and “triple word score” squares is an important part of Scabble^® strategy. Sometimes the same can be said of charitable donations, there are a number of ways in which you may, sometimes, be able to get a “bonus multiplier” on the effect of your money. This particular entry is US-centric in several ways (in particular, discussions of tax effects), but perhaps some of the other ideas here will apply more globally, feedback welcome!

Employer matching programs. Many private employers, particularly larger ones, have programs by which the employer will match employee contributions to charities. In my limited experience, many people often don’t know if their employers do have a matching gifts program, so it’s important to actually ask your employer if they do.

Typically such programs will have some limitations and exclusions. Microsoft’s generous program, for example, limits matching donations to $12,000 per employee per year, limited to non-political, non-religious 501(c)3 organizations. Finally, you’ll need to remember to tell your employer about the donation after you’ve made it. Other programs will have different restrictions and limits, it’s important to check the details of your program. None of this is terribly difficult, but it can make a big difference in stretching your charitable giving.

Charity Matching Drives. Occasionally individual charities will get offers from foundations or individuals to match donations to that charity for a limited period of time and/or up to some limit. For example, “donate to us in the next ten days and the FooBar Foundation will match your donation up to $10,000.”  These matching drives can do a lot of good, attracting potential donors to an charity (often when there’s a particularly pressing need within the organization) as well.

Two caveats about charity matching drives:

First, many matching drives have a limit to how much they’ll match. From a narrow point of view, if the donation drive would have hit that limit even without your donation, you’re not really getting “twice the good” for your donation. As a result, you might look back in history to try and see if, historically, your additional donation would still be doubled, and/or delay your donation until near the end of the drive and to try and figure out whether the drive would top out. But …. if everyone did this analysis, then there’d be a good chance that even a good matching drive would stall at least until the end of it’s matching period, and might not actually top out at all. I don’t have a good answer to this particular paradox.

The second caveat is (to my mind) a bigger concern. It’s tempting to donate to causes that have a matching gift drive even if you don’t know the organiation and haven’t spent time looking at how effective the organization is. Don’t let the existence of a matching gift program drive which organizations you donate to (or at least, not more than is appropriate). If you are going to take advantage of them, focus on organizations you know or have looked into a bit.

Taxes. I almost didn’t include this, because it’s never even in the best of circumstances a true “double word score”, but taking advantage of the tax effects of your charitable donations can let you do the same amount of good, but save a few dollars along the way. (Better, you can donate a little more knowing that the taxman will give you a kickback at the end of the year.)

Essentially, US tax law considers charitable donations to be a itemized deduction. To “get money back” from your donations, there are several restrictions. First, the organization you’re donating to must be a “qualified” organization, [pdf] while this includes a broad range of non-profit work, it excludes (just to name a few examples) most foreign organizations, many political organizations, and so on. Second, your tax situation must be such that you can make use of an itemized donation. If you don’t usually itemize (because your tax situation isn’t such that that makes sense), there’s no “kickback” on your donations. Finally, don’t forget to keep receipts for your donations, they’re a good idea at any point (if nothing else, so that you remember to include them on your taxes when you do them), but required for donations of $250 or more.

Since most of us aren’t going to revamp our lives just to “get” itemized deductions, the primary things you need to do to take maximum advantage of tax-advantaged deductions is to (a) understand if the charities you’re donating to are qualified, (b) understand if your own tax situation makes it likely you’ll be able to to deduct those donations, and (c) save your receipts!