Hi, this is my first time posting.
I want to start donating 10% of my income to charity. However, this would be about $10,000 a year -- i.e. just under the standard deduction, such that none of it would be tax deductible. This seems ridiculously inefficient. I could be somewhat more efficient by clumping my donations -- e.g. donate $30,000 per 3 years, and get $18,000 of it tax exempt. But I want to do better.
My dad itemizes his taxes and is in a higher tax bracket than me (50% income tax). If he were to donate $20,000, he'd get $10,000 back on his tax return. So if I gave my dad $10,000 and he donated it, my donation would be literally twice as impactful as if I did it myself.
The question is, are there any legal issues with this?
- Giving the money to my dad: I know that the gift exemption is $15,000, so I could give my dad up to that without either of us noting it on our taxes. I do want him to do something in particular with the money -- is there any way that could cause it to not be considered a gift? It seems like in practice, many things things that would fall under the gift exemption do come with expectations (e.g. a parent giving their child money they intend the child to use for rent).
- My dad writing the donation off: Would there be anything preventing my dad from writing the donation on his taxes? There's something about how if you make a charity donation, you're not supposed to write it off if you receive or expect to receive a benefit from it. I'm not sure if this means "from the charity" or "from anyone" though. (It's also unclear my dad would be receiving any benefit, because this is dollar-neutral for him). Another example that this can't too literal -- I imagine some EA might want to take their new EA friends out for dinner to celebrate them starting the Giving What We Can pledge -- that seems like it shouldn't negatively affect anyone's taxes.
- What if my friends also want to maximize their donations by routing them through my dad? Is anything different because they aren't family members doing the giving? No one involved would be writing any legal contracts or anything.
Thanks in advance for any advice! I know taxes are boring for everyone, but I don't want to miss the opportunity to make my donations more effective.
Hi Carl, thanks for your response and for posting the links. I have now retracted my initial strong downvote of your comment.
I understand and am sympathetic of the view that altruists investing to donate should be a lot more risk-seeking than when investing to fund their own future consumption. My concern was entirely based on your recommendation to invest long term in leveraged ETF’s. I did not think this is a good idea because leveraged ETF’s can have realized returns that deviate substantially from its underlying index in a bad and unexpected way. Given current market conditions of elevated volatility, they are especially dangerous and more likely to have poor performance. The original EA post was about taxes and likely from someone with limited investment experience. I thought your advice could actually be harmful and lead to distressing investment results.
From your links, I saw that Brian Tomasik conducted simulations of leveraged ETF’s and concluded that altruists should consider them as an effective way to apply leverage. I did not review his work in detail but it does alleviate my concern of holding leveraged ETF’s over long periods. Still, as discussed in the links you shared, this should be done with caution and with awareness of the complicating role that other factors play (e.g. fees, choice of portfolio to lever, market conditions). If investors are unaware of these risks and complexities, there could be a backlash.
Since your comment now contains a cautionary disclaimer and the various links that clearly indicate the challenges involved with leverage, I think it's unlikely to be misinterpreted anymore. Thank you for your response!