# End-of year donation taxes 101

**Tl;dr**

*   If you’re taking the standard deduction (ie donating <~$15k), ignore all this–there are basically no tax implications for you
*   Consider how much money you want to donate to c3s *specifically* (as opposed to c4s, political stuff, random individuals, some foreign organizations, etc.). For money you definitely want to give to c3s, you can put it in a DAF to count them as a donation this year, then figure out where to direct it later. For non-c3 money, it doesn’t really matter when you give it

* * *

A surprisingly large number of my friends are scrambling to make donations before the end of the year, or wondering whether or not they should be scrambling to make donations before the end of the year, and feeling vaguely bad that they don't understand their tax implications.

I will quickly break down the tax implications[^sqr2da412kb] and lay out how to buy yourself way more time and to decide on everything except *how much you donate* and *how much of your donation will go to 501(c)3s vs other opportunities*.

Note this post is greatly simplified. Your tax situation will depend on the state you live in and your income and maybe a bunch of other stuff.  If you are considering donating more than $100k, *I would strongly recommend talking to a tax professional **and** reaching out to people you trust to get donation advice*. If you don’t know who to talk to DM me or schedule a chat with a person I know and trust who has thought carefully about these things (but isn’t a professional) [here](https://calendly.com/abhatt349/aryan-bhatt-30-min).

**Why the end-of-year rush?**

You pay taxes each year. The amount you pay in taxes increases with your income. But any money you donate to a 501(c)3 in a given year is *deducted* from your income (unless you’re taking the standard deduction, i.e. if you’re giving less than ~$15k[^w03isxtnode] just ignore all this). So if I make $100k but I donate $10k, I’m only taxed on $90k of income. If you’re in a high tax bracket, that means donations to 501(c)3s are *effectively* ~37-50% (depending on the state you’re in and your tax bracket) cheaper than other things you could spend that money on.[^oqp5qi2otsi] So it’s a very substantial consideration!

But if you donate next year, you’ll still get a tax deduction, just a deduction next year not this year.

These deductions cap out at 60% of your (adjusted-gross) income.[^2meuttiqfam] *But* you can carry any deduction over the cap over to future years for up to 5 years. So there typically isn’t a huge need to rush at the end of the year to avoid hitting this cap.

If you think you’re going to hit the deduction cap for all of the next 5 years (for example because you think your income in future years will be much lower than this year, or because you plan to donate a lot and max out the deduction in future years), then you should still pay attention to the year-end deadline. The same goes if you think your tax rate will be much lower in future years (so the deduction is saving money that would be taxed at a much lower rate in future years and thus would matter less).

However, the government just cares that you've credibly set that money aside to give to something charitable, not that you’ve made up your mind about *which* charity to donate to. So **you can just donate the money to a** [**Donor-Advised Fund**](https://en.wikipedia.org/wiki/Donor-advised_fund) [(DAF)](https://en.wikipedia.org/wiki/Donor-advised_fund). A DAF is a 501(c)3 where you can donate your money and then they hold it (and often invest it according to your recommendations), then wait for you to advise them on where you want it to go. If your advice isn’t completely and utterly insane, they will re-donate the money to whatever 501(c)3s you ask them to. They charge a modest fee for this service. DAFs are common and a standard practice of many philanthropists. Setting up a DAF is quite easy. [Here’s one website where you can do it](https://www.fidelity.com/building-savings/charitable-giving), though there might be better ones out there. You can [read a comparison of DAF providers here](https://forum.effectivealtruism.org/posts/qYuehBsAe6Ri6PZvL/a-comparison-of-donor-advised-fund-providers#The_short_answer).

By putting your money in a DAF, you get the tax deduction this year but can procrastinate on deciding which charity to donate to/can keep the money invested to let it grow before donating.

Once your money is in a DAF, it *must* ultimately go to 501(c)3s. However, many good donation opportunities are *not* c3s. For example you might want to donate to 501(c)4s (nonprofits that engage in lobbying/political advocacy), [political campaigns](https://www.lesswrong.com/posts/TbsdA7wG9TvMQYMZj/consider-donating-to-alex-bores-author-of-the-raise-act-1)/PACs, a cool research project some undergrad wants to run where it wouldn’t make sense for the undergrad to go through the overhead of getting a [fiscal sponsor](https://en.wikipedia.org/wiki/Fiscal_sponsorship), certain charitable organizations outside the US, the homeless person down the street, etc.

Non-c3 donations are not tax-deductible, so there’s no need to rush to make these donations either.

**The only thing you might want to decide by the end of the year is how big you want your donation budget to be and how much of it you want to allocate to c3s**. I think some non-c3 donation opportunities can look very promising and competitive with c3 opportunities, so the decision isn’t obvious and will depend both on your specific situation (do you have donation matching for c3s?) and details of your worldview.

**A note on procrastination**: often “fake” deadlines are valuable. In practice many donors suffer from FUD about where to donate and never donate at all, or delay donating long enough that the value of their donations diminishes/good opportunities have passed them by. Whether or not it's better to donate now or engage in patient philanthropy is going to depend on your personal beliefs about what causes are important and what interventions work. But my guess is donations now are much much better than donations in the future. I think having a goal to donate a certain amount of money each year is often wise. But I believe in informing people about their options, so I wrote this post anyway.

[^sqr2da412kb]: Obviously this whole post only applies to Americans. 

[^w03isxtnode]: ~$30k if you're married and filing jointly. The exact numbers also change each year. 

[^oqp5qi2otsi]: There’s one other major benefit to donating to c3s if you hold highly appreciated assets: you can avoid capital gains tax if you donate appreciated assets to a c3 (this also works for some c4s since they’ll pay either 0% or 21% capital gains tax when they sell the asset, depending on some details; reach out to the c4 you have in mind to inquire about this). The cap gains tax could cost ~24-38% of your gains (depending on things like what state you live in), which can be quite significant. 

[^2meuttiqfam]:  Unless you’re donating appreciated assets, in which case it’s 30%.