How to Donate to Non-501(c)(3) Charities - Granite Grok

How to Donate to Non-501(c)(3) Charities

Let’s say your marginal tax rate is 25 percent.  That means, out of the next dollar that you earn, you have to fork over a quarter to the federal government, and you get to keep the rest.

(That’s one way to look at it.  A more accurate way to view things is that out of the next dollar that you earn for the government, it will let you keep a commission of 75 cents.)

And let’s say you’re thinking about giving money to some charity.  But then you find out that it doesn’t have the 501(c)(3) stamp of approval, so you won’t be able to ‘take the donation off your taxes’.  So you don’t make the donation.

But let’s take a moment to see whether this is a wise decision.  It’s nice to have examples to think with, so let’s say Pat and Chris each have an adjusted gross income (AGI) of $50,000.

For each of them, the combined tax on the first $49,000 is some amount, which we can call T.  The marginal tax on that final $1000 is $250.

Pat donates her final $1000 to Mount Royal Academy, a private religious school, which is a 501(c)(3) charity.  Her final AGI remains $49,000, so her final tax is T.

Chris donates $750 of his final $1000 to the Croydon Learning Club, which isn’t even registered as a business, let alone as a non-profit.  He hands over the other $250 to the federal government.  His final AGI is $50,000, so his final tax is T plus $250.

Although Chris’s taxes are higher than Pat’s, they are both out the same $1000, so they both end up keeping the same amount of money.

The key idea is this:  Donations to charity are adjustments to your taxable income, not deductions from your taxes.

So if you think a charity is worth supporting, there’s no reason to use tax status as an excuse for talking yourself out of that.  If you want to donate to a non-government-approved charity, just find out what your marginal tax bracket is, subtract that from 100, and donate the remaining percentage to the charity.

Yeah, the government ends up with some of the loot, although for people in lower tax brackets that can be as little as a dime out of each dollar.  But the alternative is that the charity ends up with nothing.

>