Giving More, Tomorrow

Friends often share with me that they want to start donating money or increase the amount that they are donating. This is always great news, but often accompanied by real and/or perceived challenges. A few common ones that I hear include

  • I want to start donating, but I don’t feel like I can right now.

  • I’m donating x% of my income. I feel compelled to give >x% of my income, but I don’t think I can do that right now.

  • I want to give $x, but my spouse is not on board with that.

In an ideal world, we could all just start donating our desired amount or increase to our desired amount at any time. Sometimes, we are unable to make these changes immediately or are looking for a more gradual approach. Several years ago, Shlomo Benartzi gave a TED Talk titled “Saving for Tomorrow, Tomorrow,” which relates to saving, but it could just as easily apply to giving.

Benartzi’s basic recommendation is to commit to saving a percentage of future increases in income (like raises and bonuses). Saving a portion of an increase requires no sacrifice today and takes the edge off of future sacrifices because net income still increases (because the new saving is just a portion on the increased amount). As an example, let’s say that I make $50,000 and want to save $5,000. It may be difficult to save 10% of my income immediately, but I could commit to saving 50% of my next raise. If I get a $1,000 raise, then I’ll save $500. Even though I’ve stuffed $500 into savings, I’m still netting an additional $500 of income. As mentioned, we could easily apply the same principles to giving. Below are some examples:

  • Someone who’s currently donating 10% of their income could try to get up to 12% by donating 20% of their future increases in income until their overall giving hits 12%.
  • Someone who wants to start donating could commit to donating 100% of any bonus.
  • There are all sorts of derivations and room for creativity. Suppose someone wanted to donate 6% of their income this year. They could donate 1% of income in Month 1, 2% of income in Month 2, and so on until Month 12 when they donate 12%. This is both gradual and would get them to their 6% annual giving target in Year 1 (a great feat). AND, the person would feel some relief when they drop their 12% donation rate back down to 6% in Month 13 (assuming they want to donate 6% each month in Year 2).

Sometimes getting started is the hardest part. Hopefully, the above is helpful in thinking about how to start giving or how to give more generously.

Donating Appreciated Assets To Charity

Donating appreciated assets to charity can provide economic benefits to charities, while also providing tax benefits to donors. The benefits to both charities and donors is amplified for donations of appreciated assets.

Non-Cash Charitable Donations

What types of non-cash assets can be donated to charity?

There are many types of non-cash assets that can be donated to charitable organizations. Below are several types and examples.

  • Liquid securities such as stocks, bonds, mutual funds, ETFs, listed options, crypto and so on. This is the focus of this post, although the below principals apply to any many of the below.
  • Illiquid assets such as insurance contracts, restricted stock, employer stock options, business interests.
  • Real assets such as real estate or commodities.
  • Other complex assets.
  • Depreciated Assets such as clothes, cars, and so on. These items are beyond the scope of this post since they do not provide the same tax benefits as appreciated assets.

What charities accept non-cash financial assets?

Not all charities can accept non-cash donations.

Many charities are setup to accept liquid securities, but most do not have the resources to accept illiquid and/or complex assets. Typically, these can only be donated to (larger) well-resourced organizations. Ultra high net worth donors often establish a foundation to handle their charitable donations and grants.

Unfortunately, many donors only donate cash because they believe that is the only way to fund the charities they support. Donors wishing to donate liquid or illiquid assets to charities that cannot accept them should consider donor-advised funds.

Tax Benefits of Donating Appreciated Assets to Charity

Fortunately for US taxpayers, the IRS provides income tax benefits for cash and non-cash charitable contributions. Additionally, donating appreciated non-cash assets can generate additional capital gains tax benefits.

Income Tax Benefits of Donating Non-Cash Assets to Charity

The value of cash or non-cash donations can generally be deducted from a donor’s income on their tax return, thus lowering their income tax liability.

  • For cash donations, the value of the donation is straightforward.
  • For non-cash assets that have been held more than one year, donors can deduct the market value (or estimated/appraised value if there is no market value).
  • For non-cash assets held less than one year, then the deduction is the lower of the cost basis or value (so donating “short-term” assets rarely, if ever, makes sense).

The above bullet points are summarized in the table below.

Capital Gains Tax Benefits of Donating Appreciated Assets to Charity

While donating non-cash assets can provide an income tax benefit, donating appreciated non-cash assets can provide a capital gains tax benefit.

The reason that donating appreciated assets is often more attractive than donating cash is because donating an appreciated asset allows donors to avoid long-term capital gains tax on the donated asset.

Appreciated assets generally have an embedded tax liability which must be paid when the gain is realized. For instance, if someone buys a stock at $10 and it rises to $100, there is a capital gains tax that is owed on the $90 gain. It may not be paid until the stock is sold, but that tax liability exists nonetheless and is embedded in the position until it is sold. However, if the stock is donated to charity, then the investor will never have to pay capital gains tax on the $90 gain (and neither will the charity since it is a non-profit organization that does not pay taxes)!

The below table shows the income tax and capital gains tax benefits of donating appreciated assets with various holding periods:

Benefits of Donating Appreciated Non-Cash Assets

Donating appreciated assets provides donors with tax benefits, but it can also benefit charities. Below is an example of the benefits of donating appreciated stock:

Assume a donor buys $5,000 of stock which appreciates to $10,000 over several years. If the donor sells the stock, they will realize a $5,000 gain which will be subject to capital gains tax. Assuming a 15% long-term capital gains tax and a 9.3% state income tax, the donor will pay $1,215 in taxes. The charity will receive $8,785 ($10,000 minus the $1,215 of taxes). Assuming a 28% federal tax rate (and 9.3% state tax rate still), the donor will receive a $3,276 deduction. But the net tax benefit to the donor will only be $2,062 ($3,276 deduction minus $1,215 capital gains tax paid, rounded).

Alternatively, if the donor donated the stock directly to the charity, they would have received a larger tax benefit AND the charity would have received more. The donor could send the entire $10,000 position to the charity and deduct the $10,000 on their tax return. The charity would receive $1,215 more AND the donor would have saved $1,668 in taxes (because they could deduct $3,730 without subtracting any capital gains, assuming the same tax rates).

The below table illustrates the benefits from the above example of donating stock to charity.

Obviously, the dual impacts of receiving an income tax deduction and avoiding capital gains tax are beneficial.

The above methods can be used to dispose of assets and/or reallocate/rebalance portfolios in a tax-efficient way. For instance, some investors hold stocks (that they wouldn’t otherwise hold) due to tax constraints. Donating shares of stock eliminates this constraint. This would also apply to mutual funds, ETFs, and other portfolio positions that donors wish to exit.

I should note that the above is a high-level overview and there are additional tax issues to consider, so donors should consult with their tax adviser before making any donations. As readers know, this site is designed to provide education rather than recommendations.

Review: Is Operation Christmas Child good or bad?

Operation Christmas Child is a program that has millions of participants, nearly 500,000 dedicated volunteers*, and a sizable number of vociferous critics. It is a program that I hear about every single November from friends, colleagues & acquaintances, church contacts, and so on.

Many smart, well-intentioned people that I know choose to participate in Operation Christmas Child each year, mention it in conversation, or invite me to participate. Many other smart, well-intentioned people that I know have nothing good to say about Operation Christmas Child and criticize it each year. Hopefully this post can also be a resource for those caught between Operation Christmas Child’s promoters and it’s critics, both of whom appear to overstate their positions.

I’ll start with a disclaimer that most organizations and projects have some “hair” on them (including the ones that I support and donate to!) and I don’t want to discourage anyone from doing good. We each do our best to weigh the pros and cons and unknowns through the lens of our judgement, priorities, and values. 

What is Operation Christmas Child?

Operation Christmas Child is an annual campaign that rallies millions of people to fill shoeboxes with gifts which are then distributed to kids around the world through a network of churches. It is sponsored and administered by a faith-based non-profit called Samaritan’s Purse.

Is Operation Christmas Child good (or helpful)?

I participated in Operation Christmas Child one year, but hesitated to volunteer again until I could find an answer to my question of whether Operation Christmas Child was even helpful.

One of my concerns was that Operation Christmas Child seemed like a misguided way to deliver aid. However, to Samaritan’s Purse’s credit, they do not claim to provide aid. Interestingly, Operation Christmas Child does not claim that the Christmas shoeboxes meet needs or are beneficial in any material way. Operation Christmas Child’s website is quite clear that the purpose is evangelism and that the Christmas shoeboxes are tools to that end.

So why do Operation Christmas Child’s promoters and participants communicate the idea that the boxes are providing for needs? I am not sure. I can only assume that they are reading too much into the oft-repeated Operation Christmas Child refrain that the Christmas shoeboxes will be delivered to “needy children.”

So the answer to whether Operation Christmas Child is good or not depends on whether the goal is to meet material needs or facilitate Christian evangelism.

Is Operation Christmas Child bad?

In addition to considering whether a program meets a donor’s objectives, donors should also consider what adverse consequences or externalities are produced. In other words, we should be mindful of the costs and consequences of our actions. The below are some questions I had when evaluating whether the program:

Is Operation Christmas Child an efficient and/or cost-effective way to distribute goods?

The cost of purchasing items in the US, collecting and processing them, and then shipping them overseas is much more expensive than simply buying and distributing goods locally. Imagine buying a pair of socks that was made in China, shipped to a US retailer, purchased at American prices, and then shipped back to India. It would be cheaper and more efficient to simply buy socks in bulk from an Indian company, which would be both lower cost and supportive of the local economy. I am not saying we need to boil everything down to dollars and cents and efficiencies, but stewardship of financial and environmental resources should be a consideration.

Do the contents of the shoe boxes meet actual needs?

Suggested shoebox items include: “a ‘wow’ item (such as a toy or clothes), personal care items, school supplies, clothing and accessories, crafts & accessories, toys, and personal notes.”

Operation Christmas Child critics point out that it is either naïve or arrogant to think we can give a gift to someone without knowing anything about them. Apologists contend that many of the suggested contents are basic necessities, such as toothbrushes or school supplies. I can see both sides, but ask myself:

Are the items actually needed?

For instance, Operation Christmas Child suggests socks as a possible gift. I’ve been to a ton of places where kids do not typically wear socks. This is not to mention other Operation Christmas Child-suggested items such as scarves, mittens, things that require batteries, or articles of clothing. It is difficult to understand wants/needs with no context and Operation Christmas Child does not let donors know their box’s destination ahead of time.

Are the items meeting a need?

What I mean by this is that toothbrushes might be a necessity, but are also not difficult or cost-prohibitive to procure (especially relative to effort and cost of buying one in the US and shipping it to Africa). So toothbrushes are needed by the recipients, but sending a toothbrush might not be meeting a need.

Does helping hurt in the case of Operation Christmas Child?

In other words, does the importing of free goods undercut local businesses and economies? Donors do not know where their boxes will end up, so it is difficult to say whether boxes will negatively impact their respective destination. I’m sure some boxes have a neutral economic impact, while others will have a more negative economic impact. Personally, a range of outcomes that is neutral to negative sounds pretty bad to me.

The Operation Christmas Child apologists make a valid claim that we do not know the economic impact of each box and that the quantities may be too little to do much harm. Yet, Operation Christmas Child advertises that they will deliver 11 million shoeboxes in 2022*. In light of these figures, I believe it is hard to argue that the aggregate economic impact is unknown or marginal. The questions above are about whether the program provides benefits and/or whether those benefits can be achieved more efficiently. The final question is entirely different in that the answer may be that Operation Christmas Child has a negative impact. Other methods of relief/development has costs and negative externalities as well, so just pointing out that these factors should be taken into account and weighed against any potential benefits.

Why is Operation Christmas Child bad? A personal story…

Back in 2008, my wife and I volunteered at a couple of orphanages in Cambodia (today, I’d have reservations about doing something similar again). One day, a staff member led me to a closet to grab some office supplies. When he opened the closet doors, I saw both school supplies and shelves and shelves stacked with winter sweaters. The sweaters looked new and I could not imagine them ever being worn in tropical Phnom Penh (especially thick, holiday-themed ones). I asked the guy, “What the heck are all these sweaters?!”

Laughingly, he replied, “Americans keep sending us sweaters every year.”

I asked, “Why don’t you tell them to stop sending sweaters?”

“We don’t want to make them feel bad.”

It is very difficult to provide aid or give gifts when you know nothing about a person or their context. I am sure some boxes meet some needs, many boxes fulfill wants, and others bring joy. With 11M boxes delivered, I don’t think that is debatable. However, it seems that many more needs and wants could be met and more joy delivered if the program was run differently. 

Operation Christmas Child’s promotional videos highlight success stories. This is what marketing, sales, and fundraising is all about. It is not deceptive in any way, but any action or program will result in a range of outcomes. Operation Christmas Child sends 12 million boxes, so there should be an ample number of success stories.

The question is not whether there are some successes, but what does the distribution of outcomes look like and what are the costs? What is the mean and median outcome? What do the tails look like? How does the skew look? And, of course, how does Operation Christmas Child’s distribution compare to those of its peers and other similar organizations?

Conclusions: It Depends

If your goal is to provide for needs and/or deliver aid/relief, then Operation Christmas Child is not the program for you. Firstly, because they do not aim or claim to do these this. Secondly, even if they did, it is not an efficient way to do it.

If your goal is to support the evangelism activities of Samaritan’s Purse, then Operation Christmas Child may be for you. The next question is whether participating in Operation Christmas Child or simply donating money is a better way to support Samaritan’s Purse.

Is Samaritan’s Purse a good charity?

As mentioned, I do not personally support Operation Christmas Child or Samaritan’s Purse for that matter. This post is focused on Operation Christmas Child, but I also have questions and concerns about Samaritan’s Purse. To be brief:

  • If Samaritan’s Purse sponsors and runs Operation Christmas Child, what do their other projects and operations look like?
  • Is Operation Christmas Child indicative of a larger problem of viewing evangelism through a Western-centric lens of consumerism and providing “stuff?” Conversations with other Christians in the non-profit sector lead me to believe the answer is yes. I’d dig deeper if I was interested in supporting Samaritan’s Purse, but am not.
  • Samaritan’s Purse is led by Franklin Graham. I have a lot of respect for Franklin’s parents, the late Ruth Graham and the famous Billy Graham (who was a close friend of my grandparents). However, Franklin has a history of questionable financial moves and is overtly (and overly IMO) political.
    • In 2009, Graham was publicly questioned about his combined salary of $1.2M and then immediately decreased his salary to nearly nothing. He has since raised it back up, albeit less publicly. There is nothing illegal about this, but why was he taking a salary so high that it was reduced when publicly disclosed? And why reduced to zero and raised back up? Why not simply adjusted to a reasonable level? And why all of this in the midst of revenue declines and layoffs at his organization?
    • According to public filings, Graham’s 2019 compensation from Samaritan’s Purse was over $661k. Not a huge amount for the president of a large non-profit (especially for someone with a recognizable name that can bring in donor dollars), but quite high for: an organization of its size and especially for a Christian/religious organization. Of course, perhaps Samaritan’s Purse would not do as well with another leader. Again, nothing illegal here, but it raises eyebrows and elicits questions of board independence and stewardship.
    • In addition to his Samaritan’s Purse salary, Graham receives an additional $250k for his work with the Billy Graham Evangelistic Association (BGEA).
    • BGEA recently changed its IRS status from a “non-profit” to an “association of churches.” Samaritan’s Purse has also requested to be reclassified. Coincidentally, “association of churches” do not need to report financial or compensation data. Its a curious move to seek a change to your IRS status after compensation/stewardship controversies, especially after operating as a non-profit for decades.
    • I can deal with someone being far-left or far-right, but Graham was proponent of the Obama “birther” conspiracy theory (among others) and has said ridiculous and hateful things about Muslims and immigrants. Hearing Christian leaders take political positions is bad enough, but some of his extra-political comments just make me sick.
    • Perhaps Samaritan’s Purse is insulated from Graham’s personal views and financial issues, but he is the president of the organization. He has influence. I’m sure he has many positive qualities too, but there are enough questionable things that I don’t personally feel comfortable supporting Operation Christmas Child or Samaritan’s Purse.

My Personal Decision

All of the above is simply my personal view, based on speaking with Operation Christmas Child participants, browsing the Operation Christmas Child website, and speaking with other development professionals. Not deep due diligence, but enough for my personal decision on this. Of course, there’s multiple sides to every issue and I’m open to learning more, being proven wrong, or simply continuing the conversation as we all find our way. Merry Christmas!



Donor-Advised Funds: What DAFs are & How DAFs Work

An important tax planning and charitable giving tool is the Donor-Advised Fund (DAF). There are hundreds of DAFs offered by non-profits, community and corporate foundations, and so on. The below is a primer of what donor-advised funds are and how donor-advised funds work.

What Are Donor Advised Funds?

DAFs are sponsored by 501(c)(3) non-profit organizations, donations:

  • are irrevocable
  • may be tax-deductible

However, DAFs are “donor-advised,” which means that donors may continue to direct:

  • investment decisions
  • grant recommendations

How Do Donor Advised Funds Work?

DAFs offer several important planning advantages.

Tax Benefits of DAFs

Donors receive an income tax deduction when assets are donated into the DAF, but may continue to “advise” the DAF on investments and grants. Effectively, this means that donors can still direct how the assets are invested and granted.

Timing Benefits of DAFs

The assets can remain in the DAF indefinitely before being granted out to the final 501(c)(3) non-profit. Thus, a donor can donate assets this year, but does not need to decide on the final non-profit recipient this year. The donor can decide where to direct the grant next year or in 10 years or beyond.

Other Benefits of DAFs

  • Many DAFs can accept complex assets (such as real estate or business interests) that smaller non-profits are unable to handle.
  • If anonymity is desired, grants can simply be reported under the DAF and not from the original donor.
  • Once donated, assets can be sold without incurring capital gains tax and/or any future growth is tax-free.

Flexibility of DAFs

Investment considerations and tax planning often determine how and when to maximize the tax value of donations. However, these factors may not align with the charities that one supports. For instance, what if a charity is unable to accept stock options? Or perhaps a charity could use more recurring monthly donations rather than yet-another-lump-sum donation in December? A DAF is a great vehicle that can solve for these and other challenges.

Donor-Advised Fund FAQs

Below are some common concerns that a DAF can help address.

I want to donate before the end of this year, but don’t know where to give (yet).

You can take a charitable contribution tax deduction in the year that you contribute assets into the DAF. Thus, you can contribute into a donor-advised fund (and take the tax deduction) this year, but donate from it in future years. The benefit is that you can give without rushing to decide exactly where it will all be going. The assets within the donor-advised fund can be invested in the meanwhile.

I want to sell an asset that has appreciated a lot, but do not want to get hit with capital gains tax.

If you plan on making charitable contributions, consider donating appreciated assets. When you donate a publicly-traded investment (like a stock, bond, or fund), you can deduct the market value of the donation on your tax return. Additionally, since you never sell it, you never realize any capital gains or associated tax liability. That is the main benefit of donating appreciated assets.

I’d like to donate appreciated assets, but I’m not sure if the organizations that I support accept donations of securities. 

Most donor-advised funds can accept non-cash contributions and many can even accept complex assets like real estate, business interests, and so on. If the organizations that you support do not accept securities or if its an onerous process to transfer them in, you can donate appreciated assets into the DAF, sell them inside the DAF, and then donate out to the organization in cash.

What DAF should I use?

This site does not provide recommendations, but here are some well-known DAFs:

  • Custodian -sponsored DAFs:
    • Vanguard Charitable
    • Schwab Charitable
    • Fidelity Charitable
  • Open architecture DAFs (which generally work with any custodians and allow for personalized investment management):
    • Renaissance Charitable Foundation
    • American Endowment Foundation
  • Niche DAFs:
    • Impact Assets (impact Investing)
    • Silicon Valley Community Foundation (geography-based)
    • National Christian Foundation (faith-based)

If you are thinking about making charitable contributions now or in the future, a donor-advised fund could be a valuable tool for you.

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