Potential Changes in the US Tax Code Mean NOW is the Very Best Time to Give if You Care About Tax Deductions
The looming fiscal cliff and talk in Washington about potential changes in the tax code has set off a rush among some taxpayers to maximize their charitable donations before the end of 2012. Indeed, we know the tax code will not change for our 2012 donations to charity. However, we can’t be as sure about what will happen after that. (See recent Wall Street Journal article on this topic). It seems now is a wise time to give, especially if you are concerned with the tax deductions. However, regardless of what happens to the tax code, there are lots of psychological benefits to giving to charity that go well beyond tax deductions.
Research Has Shown that Giving to Charity is Good for You: But How Can You Choose the Right Charities?
A great deal of research in psychology has examined how giving affects people’s emotional well-being. The psychological benefits of giving include the good feeling derived when people “do the right thing” (Dawes & Thaler, 1988), the pleasurable feeling of moral satisfaction (Kahneman & Knetsch, 1992), the desire to view oneself as compassionate and kind (Schlenker, 1980; Walster, Berschield & Walster, 1973) and an emotionally positive experience known as “warm-glow” (Andreoni, 1990). In contrast, not donating when we think we should can lead to guilt and harm one’s self-image (Schlenker, 1980; Walster, Berschield & Walster, 1973). What all this research has in common is the observation that helping others can affect emotional well-being. Indeed, giving to charity can lead to positive emotions such as warmth and happiness, while refusing to do so can lead to negative emotions, such as sadness and guilt. Beyond short-term emotional perks, giving has several long-term benefits as well. We like to think of ourselves as kind and giving. Thus, giving to charity doesn’t just help the causes being supported, it also helps the givers by making donors happier, improving their self-esteem, and helping them feel more connected to the rest of the world (Strahilevitz, 2011). As such, giving to charity can have positive effects on our overall well-being.
You’ve Decided to Give. How Should You Determine Which Charities to Support?
Since I have done research on charitable giving, I often get questions from prospective donors asking my advice on charitable giving. Most people that reach out for my input already understand that giving is a good thing, but they still have questions they need help with. The most common of these questions are:
1) There are so many options out there. What is the best way to decide which causes to support?
2) Once you pick a cause, you may find that there are many different charities that are linked to that cause. How can you know which charity will most effectively support that cause?
3) Once you identify causes you care about and charities that you think meet the needs of that cause effectively, you still have to figure out how much you want to “spread around” your donation dollars. Should you focus all your donation dollars on just one charity, or make multiple smaller donations to different charities?
Here aresome tips that will help you answer the questions above. The focus is on using your heart as well as your head when making your own personal charitable giving decisions:
1. Listen to your emotional heart when narrowing down what causes you wish to support. If you’re in an economic situation where you can truly give back, but you aren’t sure how to choose the cause or causes to support, follow your heart. In other words, this is a case where it makes sense to pay attention to your emotions. It really is that simple. If you care about a cause deeply, you will gain more emotional benefit from giving, and that will translate into more giving in the future. If you are passionate about a cause, every gift feels that much more meaningful. Think of causes that affect or have affected those you care most about. It’s not surprising that people with loved ones who have battled cancer are more likely to support organizations devoted to fighting cancer. However, beyond personal experiences, some people are most moved by rescuing animals while others particularly want to help children in the third world. Your values and personal experiences should align with your charitable giving. Noticing what causes touch your heart may be the best guide to what charities you should consider supporting. Ask yourself what matters most to you. Protecting human rights? Supporting battered women? Feeding sick children? Finding a cure for cancer? Rescuing abandoned pets? Protecting the environment? Funding art projects? Supporting religious causes? Contributing to non-ideological humanitarian causes? Helping the homeless? There’s no shortage of charities linked to these issues as well as other issues that are likely to touch your heart.
2. Once you have figured out what causes touch your heart, it is time to use your head to choose the specific charities you will contribute to.
According to Giving USA’s IRS data, there are currently over 1.28 million 501(c)(3) non-profit organizations in the US. Clearly, when it comes to giving, there are an overwhelming number of options. However not all of the charities listed do what they say they are going to do with your contributed funds. (See recent charity scandal story by Anderson Cooper of CNN). You obviously want to make a donation to an organization you trust? How can you differentiate which charities deserve your donation dollars?
It will take some research to determine which charities you can trust with your contributions. Fortunately, there are many research tools online that offer facts to help you find the charities that best support the causes you care most about. Do your homework. Find out where the money goes. There are now many organizations in the business of vetting charities and other non-profit organizations. One of the most comprehensive is Charity Navigator, but there are plenty of others to check out as well, including Give Well, American Institute of Philanthropy, and Great Nonprofits. Use these tools to make sure the dollars are going where they are supposed to be going.
There are likely multiple charities that both fit under a cause you care deeply about are ethically using donated funds. So now you need to dig a bit deeper into your own personal values and do a more research as well. Remember two charities may appear to be dealing with the same issue, and they may both be ethically allocating the funds they collect, but they may still be approaching the issue very differently. For example, several charities are focused on fighting breast cancer, but they don’t all allocate funds in the same way. One charity might focus heavily on funding research to find a cure, while another may focus on encouraging early detection, or helping women without health insurance get the care they need. Similarly, several charities focus on fighting childhood hunger, but some of those charities are secular, and others link feeding the hungry with spreading a particular religious doctrine. Additionally, there may be different ideas of the best way to solve a problem. Some charities focus on developing and supporting local entrepreneurship that will enable parents to better support their families in the future, while other charities address only the immediate need of getting food in the hands of the hungry. For each cause you are passionate about, decide which approach you are most comfortable with personally, and stick to charities that take that approach. All this is about knowing the details so that you are sure your money is going where it will have the most meaning to you.
3. Don’t forget about tax deductions. The more you are able to deduct from your taxes, the bigger your potential budget for future giving.
Make sure each of the organizations you plan to contribute to are properly filed as 501(c)(3) non-profit organizations. That means the organization can legally operate as a non-profit, which allows you to deduct donation expenditures from your taxes. Also, make sure your organization is transparent and shares its financials. You may also want to find out how the organization will keep you informed about where your money will go. You will likely want to see evidence (progress reports, third party validation, etc.) that what they say they do, they actually do. Make sure you understand what each of your chosen charities does, and that you’re not dealing with an advocacy group posed as a charity with a different agenda than your own.
4. Should You Give to Several Charities or Focus on One?
My own research suggests that people who are passionate about multiple causes may derive more happiness from spreading their donations dollars around among different causes (Strahilevitz, 2011). This is particularly true for those who plan to donate quite a bit of money in total. Charities are aware of this tendency to seek variety, and often pair larger donations with greater public recognition and/or thank you gifts. What makes the most sense for you is (again) to listen to your heart and do what feels best to you. As long as all the charities you are considering are worthy and have passed the criteria above, whether you give to many, few or just one really is about what feels best to you.
5. Now you have listened to your emotional heart to identify which cause(s) you care about and how many charities you want to support, and used your rational head (and available research tools) to pick the best charities to support, you have only one more step to take-- GIVE!
Go for it! Make those contributions. Research shows that giving will improve your self-esteem, increase your sense of connection to the world, and make you a happier healthier person overall. If you ask me, in these tough times, that is a great bang for your buck!
Good luck on your giving journey!
Andreoni, James (1990), “Impure Altruism and Donations to Public Goods- A Theory of Warm-Glow Giving,” Economic Journal, 100 (June), 464-477.
Dawes, Robyn, and Richard Thaler (1988), “Anomalies: Cooperation,” Journal of Economic Perspectives, 2 (3), 187-197.
Kahneman, Daniel, and Jack L. Knetsch (1992), “Valuing Public Goods: The Purchase of Moral Satisfaction,” Journal of Environmental Economics and Management, 22, 57-70.
Schlenker, Barry R., Donelson R. Forsyth, Mark R. Leary, and Rowland S. Miller (1980), “Self-Presentational Analysis of the Effects of Incentives on Attitude Change Following Counter-attitudinal Behavior,” Journal of Personality and Social Psychology, 39, (4), 553-577.
Strahilevitz, Michal (2011), "A Model of the Value of Giving to Others Compared to the Value of Having More for Oneself: Implications for Fundraisers Seeking to Maximize Donor Satisfaction,” in The Science of Giving: Experimental Approaches to the Study of Charity, published by Psychology Press, a Taylor and Francis Group. 15-34.
Walster, Elaine, Ellen Berschield, and William G. Walster (1973), “New Directions in Equity Research,” Journal of Personality and Social Psychology, 25, (2), 151-76.