Deductive reasoning (this title is kinda clever)

First off, thanks for helping me host an awesome conversation yesterday about charitable gifts and taxes. Y’all were polite and cool-headed, even if you didn’t necessarily agree with the person that commented above or below you. Well played everyone, well played indeed.

Anywhoozle, yesterday a reader suggested that anyone who lists charitable gifts on their taxes is not donating out of the goodness of their heart, but for the selfish benefit of receiving a tax deduction. I can understand why the commenter thinks this.

Truth is, the deduction benefits probably do encourage charitable giving. I mean when was the last time you gave $1,000 to a business or organization that didn’t qualify for a deduction? If you’re like me the answer is almost never. Sure I give $20 here and there to a homeless person, or I might give $100 to a friend for a missions trip, but I honestly don’t think I’ve ever just walked down to my local coffee shop and been like “Hey you guys do awesome work and I want to support the business, here’s $500.”

So yes, I guess most of us probably do only give substantial financial gifts to charities that allow us to deduct that gift from our tax obligation, but ultimately I have to disagree with the sentiment.

I might be wrong, but I’d bet most people donate because they want to help someone or something out, not because they’ll get a deduction. It just doesn’t make financial sense. If I’m in the 25% tax bracket and I give $10,000 to charity over the course of the year, my maximum benefit for making that contribution would be $2,500. Why the heck would I give someone $10,000, so I can save $2,500? It clearly would be to my benefit to never make the contribution, write Uncle Sam a check for an extra $2,500, and keep the remaining $7,500.

And that is exactly the point I want to make today.

Why do people get so jacked up on tax deductions like they are best thing ever? I mean people were telling me to keep my student loans because I could deduct some of the interest on the loan. They literally were trying to convince me to keep paying $2,000 a year in interest to Sallie Mae, so I didn’t have to send the government $500. I bet some of you with mortgages have probably had similar garbage preached to you, “Don’t pay off the mortgage, you’ll lose the deduction.”

Don’t get me wrong. I love me some deductions. If you are eligible, take ’em. Just don’t do something stupid and give Person A $5,000 so you can avoid giving Person B $1,000… Unless of course you have so much freakin’ money you like wasting it, then by all means waste to your heart’s content.

Have you been told to keep a debt around longer than you wanted because of the tax deduction? Do you regularly give significant financial gifts to non-qualified businesses or organizations? Have you ever given a gift, purely for the tax benefit?

73 thoughts on “Deductive reasoning (this title is kinda clever)”

  1. you must have read my mind (or the vibe on my comment on your last post!)

    I take all the deductions I can get. Which I don’t feel bad about, cause I reinvest them somewhere in the economy (or, perhaps more accurately, my wife does!)

  2. To clarify though… I don’t spend more than I have to just to get a deduction, although I make sure that the non-deductible interest is the last one to pay off!

  3. I have to agree about the mortgage interest deduction. We don’t have that here in Canada, but I’ve read about how in the US it seems to be common to keep your mortgage longer in order to get that deduction. That seems so ridiculous to me, aren’t you still paying tons more in interest over the life of the mortgage? If you can’t pay it off any faster, then that’s a different story, but if you want to pay it off and you’re holding out because of the itemized deduction, that just doesn’t make financial sense to me. I guess maybe having no incentive to keep a mortgage in Canada is a good thing because I’m going to pay mine off 7 years from now! No reason to keep that around!

  4. When it comes tax time, I give my accountant her cash and hope that she can find every possible deduction under the sun. I don’t go out of my way for them, though. That was certainly not the reason that I got my house or any of the other things. In fact, giving charitably just for the deduction never really even crossed my mind.. it was more, hey, these folks need food, so I give them food. I’m with you on this one – giving bunches of money for a little return is stupid. 🙂

  5. I use my credit card for all my charitable donations so that (1) I can get a tax deduction and (2) I get cash back. #2 makes me feel a little bad.

  6. Tax deductions don’t even enter my mind when I make a donation. And I have made several donations (albeit not huge amounts) that were not tax deductible. But, I definitely take them and use them since I can. I’m no dummy.

    I’ve been offered up the “you’ll lose your tax deduction if you pay your mortgage off early” comment (my plan is to have mine paid off in 8 years total). The tax deduction does not make up for the money I will have in my pocket for not having to make the monthly payment, and it does not make up for the fact that I will own my house free and clear. Peace of mind is worth something to me.

  7. You realize nobody is going to say yes?

    That’s like asking someone, “do you pick your nose and eat it?” even if they do, they’re not going to admit it and look like an asshole.


    Glad to know though, that my words fascinate you so.

      • And I’d be curious to hear your logic as to why someone would donate money for the sake of a tax write off. I pretty much showed that doing that would be a terrible financial move. You never come out ahead by donating.

        • If they’re doing it to help, then they can leave it off their tax returns and just feel good knowing they helped.

          And I don’t think the worst of people. However, I did work somewhere where people donated unusable things (poor people don’t deserve anything nice, you see) and I literally saw them wait around for the paper from the Salvation Army saying they donated so they could write it off on their taxes. They would not leave until they got that piece of paper so they could write their shitty donations off on their taxes.

          • Did you not also see people drop decent stuff off (clothes, furniture, etc) and walk out of the store without getting a receipt? Sounds like you have a case of selective memory, remembering the people who game the system, while forgetting many don’t.

            I get that you think people claiming their charitable gifts on taxes is disingenuous, but I just can’t say I agree. I gave more to Charity last month than Biden gave all year. I will not be claiming them on my taxes since they are about equal to my standard deduction. So what if I decided to waive the standard deduction and instead itemize. How does that suddenly retroactively go back and make my donations less selfless?

            This truly is a situation where you can have your cake and eat it to. You can help a great cause, and as a result of your noble efforts the government goes a little easier on ya. Nothing more, nothing less.

          • Donating unusable goods is of course despicable, but the charities to which I’ve donated clothing have always stipulated that it must be usable and in clean condition. I don’t know if the Salvation Army does the same thing, but I strongly doubt in any case that the donations these people are making are getting them much of a return. There’s a big difference between cash and non-cash contributions – which is that a cash contribution needs only to be backed up by a cancelled check or similar receipt, but non-cash contibutions over $500 require a separate itemization and if they are over $5000, an appraisal.

            I appreciate your point about how giving should be its own reward, but on the other hand, everyone has the right to reduce their taxes as much as they legally can. I don’t buy the notion that people give to charities solely for the tax benefit, however. Personally, I am content to take whatever tax breaks I can from contributions, but I contribute only to organizations that I support. The tax break for me is an incentive, but hardly the only one.

  8. The point of giving is to help someone else, not help yourself. That’s the point I’m making. If you’re getting a tax deduction, then your motivation is partly selfish.

    And nobody is going to admit that a tax deduction is their primary reason for giving, even if it’s true. It’s like asking if someone regularly treats cashiers like shit. They’re not going to admit it.


      That premise makes ZERO financial sense. None. Zilch. Nada.

      • If they donate crap stained clothes, they aren’t really losing anything and they still get a deduction. They could donate a pile of useless shit and still write it off on their taxes.

        I assume you’re implying that someone loses more money by donating than they gain by claiming the deduction?

        If you donate something worthless and still get money for it, voila. Hence the people at the Salvation Army.

        • You just aren’t willing to look past those leaches of society who game the system are you? We get it, some people abuse the system, but at least lighten up a little and realize that is one small minority of the much greater population. You don’t have to be so narrow minded.

        • At some point C, I’m hoping you realize “Holy crap, why is it every time I comment on PDITF everyone elses view is in direct opposition to mine. And why hasn’t there ever been anyone else that’s backed me up.”

          You make some great points. I even noted them in my article today. Don’t let yourself fall in to role of the antagonist, always trying to pick a fight. I’ve been reasonable with my comments on your blog, can’t you return the favor here?

          • Luckily, I neither care whether anyone agrees nor need anyone’s agreement. I’m fine with being a lone (she) wolf.

            Also, no offense but a lot of your readers are…how shall I put it…not the sharpest knives in their proverbial drawers.

    • Look at it this way C.

      Some people, myself included, can’t deduct for charitable contributions because we don’t itemize our taxes. That means that the cash I gave to my favorite presidential candidate, and the international peace organization will not benefit me. Lets say that amount was a theoretical $1000.

      If I were able to itemize my deductions and claim the charitable contributions as well, I would be able to donate that much more! Instead of $1000 dollars, I could increase it by my marginal tax rate of 25% for a larger contribution of $1250. In effect, regardless of the amount, people are donating SOMETHING.

      The point of giving to help. My level of burden does not change how beneficial that gift is.

      • Grammer: The point of giving IS to help 🙂

        I meant to summarize by saying whether I give 1000 or 1250 it is still charitable. The tax deduction is not “making” any money.

        Thats what I get for responding before coffee.

        • I really just gotta figure out a way for you guys to be able to edit your comments. It’s not fair that when I make a typo I can go back and redact it, but you can’t.

          p.s. It’s grammar ….go get that coffee 🙂

          • my poor decaffeinated head…

            Thanks Larry
            I’m glad to learn political donations aren’t deductible. I never bothered to check.

      • “That means that the cash I gave to my favorite presidential candidate . . . ”

        Stop right there. Political contributions are not deductible under any circumstances.

        • Larry, I wrote this post earlier than normal so it would be up in time for you to read it before you started work. And of course you wait until lunchtime to comment 🙁

          • Sorry about that. But it isn’t even lunchtime yet. Seriously: post whenever you feel like it. I couldn’t write more last night or this morning ’cause I had other commitments. Will try to write more later today.

      • Derek, just to make sure you don’t get in trouble. Contributions to political candidates or parties are not tax deductible on Federal taxes. They have to be a 501c3 org for donations to qualify for deduction. IRS checks that you’re donating to legit places during routine/computerized checks.

        States may handle this differently. For example, in Virginia, donations to state and local candidates are partially deductible from state income taxes: you can deduct 50% of the contribution or $50, whichever is less.

        • This paragraph from Ninja confuses the issue somewhat too:

          Truth is, the deduction benefits probably do encourage charitable giving. I mean when was the last time you gave $1,000 to a business or organization that didn’t qualify for a deduction? If you’re like me the answer is almost never. Sure I give $20 here and there to a homeless person, or I might give $100 to a friend for a missions trip, but I honestly don’t think I’ve ever just walked down to my local coffee shop and been like “Hey you guys do awesome work and I want to support the business, here’s $500.”

          What you give to a homeless person or a friend, or for that matter to your coffee shop, cannot be deducted as a charitable contribution. Deductible contributions can be made only to qualified non-profits such as religious, scientific, educational, and cultural organizations, never to individuals or for-profit businesses. So if a blogger asks for a “donation,” that is technically a misuse of the term. What you give to the homeless, the blogger, or the coffee shop is a gift, pure and simple.

          • Is the issue with what I said in using the word “donate”? I don’t get how that paragraph confuses the issue. I wasn’t implying that giving to homeless or a coffee shop is a deductible donation. In fact, it’s quite the opposite. I even said “a business or organization that didn’t qualify for a deduction”, then went on to talk about giving to homeless people or a coffee shop (examples of persons or entities that don’t qualify for the deduction). Just don’t see how I was confusing.

            Does the word “donate” really mean only gifts to charitable contributions that are tax deductible?

          • Chances are I was reacting to the association between “charitable giving” and “giving” to a homeless person or friend. I see now you were not saying this as implying a deductible contribution. Whaddya want, it’s almost midnight here.

            But your statement, “I mean when was the last time you gave $1,000 to a business or organization that didn’t qualify for a deduction?” is not valid either. Many people make non-deductible political contributions; they may also make contributions to organizations that are explicitly identified as non-deductible. From the NRA website:

            I would like to donate this amount to the NRA:
            Contributions, gifts or membership dues made or paid to the National Rifle Association of America are not refundable or transferable and are not deductible as charitable contributions for Federal income tax purposes.

      • I just want to throw it out there – I assumed that I couldn’t itemize because I didn’t have a mortgage and I never seemed to have enough of the itemizable things – but when I actually tried running the numbers through a tax program, my state taxes were high enough that it was better for me to itemize, even though that is my *only* itemized thing.

        I hadn’t realized that state taxes counted towards the itemized deductions – so if you haven’t tried it, it may be worthwhile!

        • If you did not itemize in the past three years but were entitled to do so, you can amend your federal (Form 1040X) and state returns. It’s a lot of work as you may have to re-compute three years of taxes starting with the oldest year first, but perhaps you might get a lot of additional money back.

          • thanks Larry – I actually did go back and run the numbers. Luckily, the years I hadn’t itemized were also years of lower income, and the standard deduction was the right way to go!

  9. Lots of people who donate money take a standard deduction anyway.

    Plus if you donate $100, at best (meaning if you’re in the top bracket) you’re going to save $40 on your tax returns. I still struggle to see where donating an effective $60 is selfish.

    I’m willing to bet that people who say donating money and taking a tax write off is selfish use that excuse to not donate money at all themselves.

    • I don’t. I don’t donate money at all, but that’s because I’m poorer than shit, not because I’m selfish or using excuses.

      I do donate a little bit to certain charities, like a dollar. That’s a paltry donation, but I can’t afford much more.

      • That all may be, but in effect you benefit from the charitable deduction whether you realize it or not. As (presumably) a single filer, you are entitled to a standard deduction of $5800, regardless of your income. That deduction represents the IRS’s estimate of what deductible expenses you’ve incurred, and it’s only after you reach this threshold that the IRS cares enough about your deductions to want you to itemize. So what is deductible? most commonly: high unreimbursed medical expenses, state and local taxes, property taxes, mortgage interest, and charitable contributions. Of those, your only likely one is state/local taxes, and if you live in a non-tax state, not even that. And even if you lived in a high-tax state like mine (NY), you are not likely to owe as much as $1000 in state tax. So what’s the rest? charitable. That’s right, even though you don’t contribute more than a few dollars to charity, the IRS is giving you a tax break as if you were contributing several thousands.

  10. I think some people probably give charitable gifts for the tax deduction, but I don’t think it matters. At the end of the day, someone who needs money is getting it, right?

    I don’t give to charity for the tax deduction, but I’d be lying if I didn’t admit that the deduction encourages me to give MORE to charity. Before I might have only given $5 or $10, but now that tax deductions are helpful to me, I’m much more likely to give $25 or $50 at a time.

    I also think that tax deductions and the ability to give to charity go hand in hand. When I was a broke student, I made almost no money, and thus paid almost no tax, so tax deductions were irrelevant, regardless of whether I could afford to give to charity. Now that I make a bit of money, I do feel it’s my obligation to give some of it back. The tax deduction is certainly a nice bonus, but it’s not the only reason I do it.

      • Yes, clearly if someone donates more than they were going to in the first place that is a head shaking worthy cause….I’m fairly certain that the people receiving that donation would not scoff at something given to them even if they knew that the person got a small tax write off.

      • C – maybe you should get off your high horse and realize that it is not bad to be motivated by the deduction. Not taking the deduction is like leaving money on the table. Don’t judge others for saving money as a result of a donation.

        If you are so angry by those of us who are rational on here, perhaps you should stop commenting. I won’t say stop reading b/c I want Ninja to continue with the ad revenue.

  11. The benefit of the charitable tax deduction is leverage. If I can afford $70 to donate to my favourite charity, with a tax deduction, I can rationalize that *really* I can donate $100, because I’ll get $30 extra back on my taxes – so I can leverage some of the money the government would otherwise take, and the charity that I want to support gets more money. My “out of pocket” cost is still only $70.

    When I was shopping for a house, nearly all of my friends and coworkers were *aghast* that I wanted to get the smallest mortgage possible – not the largest mortgage I would qualify for. The phrase “but *really* your payment is *less* because of the deduction” came off many people’s lips.

    The mortgage deduction only reduces the amount of tax you have to pay – if, god forbid, I should end up unemployed – that tax deduction doesn’t help pay my mortgage, nor does it reduce the amount the bank wants every month.

    I got the smallest mortgage I could, and I’m paying it off early – I’ll “sacrifice” the tax deduction in favor of paying less interest overall for my house, and getting rid of that monthly obligation asap.

    • I’ve had this discussion, too, and it’s usually with people who don’t understand the tax code. They think that you get a dollar-for-dollar deduction, instead of a percentage (since you take the deduction and then go to the tax table). The only way to get through is to run the numbers, but that just confuses them if they don’t understand the code in the first place.

  12. I don’t give to charity for a tax deduction because I don’t itemize my deductions. Since I don’t have a mortgage, or high medical bills or lots of un-reimbursed job expenses, itemizing doesn’t make sense for me (I’ve gone though it and it didn’t help).

    I give to charity because I want to help the organization. What I have learned is the government likes to make the citizens behave a certain way, and they like doing it in the tax code. They wanted to stimulate the housing market, so they put a huge credit in there. They wanted people to install newer furnaces and more insulation, so they put in a tax credit. The list goes on and on. So they want people to give to charitable organization, so they put it in the tax code!

  13. I don’t give a donation simply to get the deduction, but I give more than I would otherwise because of the deduction.

  14. @Foscavista: The charity gets hit with a transaction fee when you use a credit card for a donation, so not all of your money is going to the organization you wish to support, FYI. The fees for debit cards are much more limited now.

    I don’t get worked up about using credit cards with merchants, but for a charitable organization I’d rather as much of my money as possible go to the organization. For my year-end donations, I used a debit card to make sure it got processed before the end of the year, but I hadn’t used the card in so long I got a call from a fraud specialist almost immediately to check on the irregular activity.

    I tried to start my taxes last week, then realized I had to wait for a few more forms. But it doesn’t look like it’s going to make sense for me to itemize deductions, so it’s not a big issue for me.

  15. Your post made me think… I have always used the standard deduction for my taxes, and I will this year too. I’ve never thought about using any of my donations as deductions for that reason. But in reading your post, I noticed I do have some of that feeling you mention, that it’s not true charitable giving if you’re using it as a write off. You’re right though, it’s a pretty irrational thought. If you’re giving the donation anyway, what harm does it do to count as a deduction? Especially if you’re not happy with what your tax dollars are being used for and you think a non-profit could do more good with them. In the year ahead, I will most likely be itemizing my taxes, so I will have to keep better track of my donations. It seems like such a pain to do, though, particularly because I donate several bags of clothes to Goodwill every few months. So much to consider!

    • Quick question: do you consider ripped and stained clothing, or very worn clothing, to be an acceptable donation? I find that people give clothing in inappropriate condition, figuring that poor people don’t deserve nice clothes.

      • I totally agree with this point. I always make a point to only give away clothes I would still wear to homeless shelters – i.e. excess or unnecessary – as opposed to something that is not good enough for me.

        • That’s good. Honestly, if it isn’t good enough for you, just toss it. Poor people struggle enough, it would feel better to give something they’ll wear and feel good about themselves. It is really demoralizing when you’re faced with people who think “You’re poor, so you can take my garbage.”

  16. When I owned rentaal property, I used other people’s money to pay my debt. That is the absolute best way to pay off debt. Short of that you should view debt as lost opportunity costs. That is you could be earning money with that debt balance or payment. Hence, lost opportunity.

  17. I do and I don’t. In AZ you get a CREDIT not a deduction for certain kinds of donations. So I take a credit for donating to the foodbank up to $400 and to the school for up to $400. No only does AZ give me my $800 back but then the fed gives me 25% back as well. So I make $200 from the feds on that donation.

    The problem also is that most people do not itemize and you have to donate past the standard deduction before you get your tax bracket % back. So you have to donate a lot before you see an additional cent back. However tithing usually clears our standard deduction hurdle and the rest is gravy.

  18. I’m in Australia, so I’m not sure if things are different there, but with some expenses that cause a tax break that might seem silly (ie. you seem to be taking a loss just to avoid paying one tenth or whatever of that amount in tax) – the whole point is that it shifts your entire YEAR’s income down to the next tax bracket.
    For example,
    if I earn 55k but donated 5k to charity, so I could avoid paying 2k on that 5k, that would seem really stupid.
    however, if spending that 5k pushed me down to the next tax bracket, i could potentially save 10k thanks to the lower tax rate.
    here, you only pay off your student debt if you earn over a certain amount, so going down in taxable income could also mean you don’t pay a couple of grand in student debt, too (we owe our student debt to the govt here)
    it’s about looking at the bigger picture.

    • Not quite… Australia still works on a marginal tax system, your total income is not taxed at your marginal rate, so the benefit for the deduction is still whatever bracket you are in (or fall to).

      But getting your income below the HECS/HELP/Student Loand repayment threshold is a big saving – repayment cuts in at about 47k taxable income and is 4% and rises quickly, so that any deductions you can get under this can be a big saving.

  19. As you’ve guessed, tax codes are indeed written to encourage certain behaviors (buy a house, install energy saving appliances, invest, have children, conduct more business (business expenses)) and make others more expensive (act as head of household instead of getting married). The tax code is the one that encourages the growing of corn and hiring veterans. It is used for more social engineering than anyone ever admits.

    • I will happily take my small refunds and stay childfree and unmarried, thanks much. It costs more to raise children than those credits even give you, so…lol.

      And hey, a couple hundred dollars is at least good for going out for drinks. lol.

  20. Keeping loans, generally speaking, sounds rather silly. One should always do the calculation to see what’s best for them.

    But this notion of tax deductible and charitable got me thinking about how one could measure this? It seems there’s a small uptick in USA google search volume in Q4 for the term “charity” – it’s small, but there is a blip (sometimes erased by previous disaster). Similarly, there’s a down-tick in search volume for “volunteer” towards the end of the year (I was secretly hoping these two items would be coupled). Some charitable giving indexes also indicate the last few days of December showing a huge surge in donations. I can let someone else interpret why this happens…

    I don’t think anyone will admit that beneficial deductions influenced their decision but I don’t think that changes that the tax code is written to encourage such behavior. I’m also confident that most of us reading your blog are not in the earnings group that give a majority of all charitable donations.

    Giving cash for the tax donation doesn’t make sense purely for tax reasons… Giving appreciated stock, however, can make sense. If you buy shares at a value of $500 and donate when they’re at 1000, you can deduct $1000 and are not subject to capital gains. This can be particularly useful if you’ve been given stock options and take appropriate action (turbotax isn’t going to cut it for this complex of a maneuver and planning ahead is required). Giving depreciated stock also allows for you to deduct the value + you can deduct the depreciation.

  21. I’m not a troll.

    Also, I need to point out that lots of charitable donations, like clothes and products that someone already had, don’t cost anything. So they get money from a deduction from a donation that didn’t cost them a penny.

    The aforementioned poop stained underwear comes to mind.

  22. Oh and this person is awesome:

    “When donating items to your local thrift store keep in mind that most of the items you drop off will be going to other people. People who will either pay their hard earned money for your items at a nicely discounted rate, or people who are in need of said items and will receive them free of cost.

    A good rule of thumb is “Would I wear/use that in the condition it’s currently in?”

    Using this rule a person with minimal intelligence should be able to come to the conclusion that your gently worn jeans, shirts, pants etc, are good items to donate. Paint and Grease covered clothing, things with holes in them are not really something we can re-sell. (what the hell do you people do to your crotches? I have seen more crotch holes in pants donated at the Store than in a Frederick’s of Hollywood catalogue) If you let Fluffy or Spot use a shirt or blanket for a pillow, please don’t donate it. Ever see someones head explode when they open a bag of fur covered items and their allergies go to DEFCON1? It’s not pretty. It’s always sad when Great Aunt Amelia or Grandma Betty dies, but we really don’t want her 12 boxes of mold and mothball smelling clothing from the 1970’s. I’m sorry if that’s mean, but just throw them away. Do I even need to advise you about dirty underwear or socks? I shouldn’t have to, but apparently the General Public has no understanding of the idea that no one wants to buy your pee, poop or blood stained underwear. Yes, we get that donated. Every day.”

    • No one is against you on that point, yet you keep insisting. We all hate people that donate crappy and unwearable products to goodwill.

      Why do you feel the need to keep bringing it up? We aren’t stupid, we understood (and agreed with) you the first time.

      …And we will still understand when you bring it up again in response to this comment.

      • Never said anyone here was against me, but I’m hoping some here will let their friends and family know, since as my quote clearly shows, education is needed among the General Public.

  23. I think someone would donate for the the tax write off to create a paper trail that says John Doe gave enough money to start a school in a third world country so he should be praised for the kind heart he has and in return be promoted to CEO/granted the next long-term contract/elected next November.
    Ultimately they’re not doing it for the write off but for the status.

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