For my family, the following three concepts ended up being very different:
- the year a charity receives the money
- the year we part with the money
- the year to which we mentally allocate the donation in our heads (e.g. the year that we would want the donation to count for commitment purposes)
Nothing explained here is very new to the EA community, but I thought it might be helpful to write down our details/example.
Donation plans
For a while we've been increasing the amount mentally allocated for each year's donations. In 2017, it was $10,000. We haven't made any formal commitments, but our rough plan is to increase it by $2,500 each year until it's 10% of our income.
EAs have encouraged stable or increasing donations amounts/percentages, and it's psychologically useful to think of ourselves as following that guideline even while making optimizations (as you'll see below) that actually deviate from it.
2017
In 2017, we donated $10,000 to organizations we support. (Some of this was matched by my employer and some in Facebook's Giving Tuesday event, but we aren't counting that extra towards our commitment.)
We also had some assets that made sense to put in a Donor Advised Fund, so created one. That's separate from our 2017 donations, and disbursements from the DAF will count for future years. It was nice to be able to think about making this tax
optimization separately from our commitment to donate.
- in our head: $10,000
- charities receive: $10,000 (plus matches)
- assets we part with: significantly more
2018
We had planned originally for 2018 to be one of those future years when donations came from the DAF, but two things changed that plan:
- we have some tax deduction from 2017 that couldn't be used in 2017; since those would push us over the standard deduction in 2018 anyway, it makes sense to itemize and make more deductible donations this year (2018)
- we decided to participate again in the Facebook's Giving Tuesday donation matching.
So we decided to make all of this year's donations ($12,500) through Facebook fundraisers at 8am on Giving Tuesday, plus $10,000 of next year's donations. That's $22,500 on Giving Tuesday.
We also decided (for the tax reasons explained above) to put $5,000 in the DAF this year.
- in our head: $12,500
- charities receive: $22,500 (plus an equal amount matches? we don't know yet how Giving Tuesday turned out)
- assets we part with: $27,500
2019
$10,000 of 2019's donations were made in 2018. The other $5,000 will be a disbursement from the DAF.
- in our head: $15,000
- charities receive: $5,000
- assets we part with: $0
Further out
From 2020 onward, all of our donations might come from the DAF until it's empty. Or maybe we'll use the DAF some years but not others. If another opportunity like Giving Tuesday came up, that could lead us to give from our own money again (and in that case, probably "lump" multiple years' donations into one again for tax reasons).
- see also Ben Kuhn's post on donation bunching, but note that the standard deduction has changed since then so the numbers are all different now
Thanks
Thanks for feedback on an earlier draft: William Kiely, Jeff Kaufman.
Thanks for writing this up!
This may not be new information, but everyone has to learn about donation bunching/optimizing for tax deductions somewhere, and there's no "standard" way to do so yet.
This is bad, because there's a regular flow of people who go from "not having this problem" to "having this problem": Each year, some people with high salaries join the community, and some community members who donate regularly begin to earn high salaries. I hope that members of both groups see this post and remember to donate efficiently.