About this video
Sal discusses why people give to charity, mostly because it feels good to help the world. He corrects the cynical idea that donors profit from tax write-offs: a donation usually just reduces taxable income, so at a 30% marginal tax rate a $100 donation saves $30 in tax and still costs the donor $70.
You'll be able to
- describe reasons people donate money, time or goods to charity.
- explain why a tax write-off does not usually give donors more money back than they give.
- calculate the net cost of a donation given a marginal tax rate.
Key words
- Charitable giving
- Donating money, time, services or goods to a charity or nonprofit to help others.
- Nonprofit
- An organisation that works for a cause rather than to make a profit for owners.
- Tax write-off
- An amount, like a donation, that reduces the income you pay tax on.
- Marginal tax rate
- The percentage of tax you pay on your last (extra) dollar of income.
Transcript
- So let's talk a little bit about charitable giving. And this one is close to my heart because I run a nonprofit. So why do folks donate to charity? Well, you might have your own motivations. For most folks, I think it just feels good. They might feel that they have certain privileges in life that other folks don't have or they might want to see a disease cured.
Help educate folks, help the world in some way. And if you haven't tried it, I encourage you to when you donate money or you donate some of your time services or you donate goods to a charity and you feel like, hey, I'm making the world a little bit better, it feels really good.
Now, some people might be a little cynical and say, oh well they get a tax write off whenever they donate money, et cetera. But I wanna be very clear, 'cause I've heard that a lot. Whenever someone has seen someone else donate, oh, well they're just getting a tax write off.
In the vast majority of cases you do not get more money back than you donate. In most, most cases, if you say donate a hundred dollars that's just going to reduce your income by a hundred dollars. And let's say your marginal tax rate is 30% to make the math easy, that means it'll reduce your taxes by 30% of that a hundred dollars.
So if you donate a hundred dollars to a not-for-profit to a charity, you will get $30 back in that situation on your taxes but you still donated a net $70. So when folks are donating, don't be cynical about it. They're definitely giving more than they're receiving.
There's some special cases, maybe you have a car that you couldn't sell for more than a few hundred dollars. And if you donate to a charity you might be able to have a slightly larger write off than that. But in the great majority of cases folks are giving more than they're receiving.
And what they're really receiving is that feeling that they're doing good for the world.
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