Consider whether you’re comparatively advantaged to give to non-tax-deductible things.
(Not financial advice.) I think people—especially donors who are giving >$100k/year—often default to thinking that they should stick to tax-deductible giving, because they have an unusually high “501c3 multiplier” due to high marginal income tax rates or low cost basis for capital gains taxes. I claim this is a mistake for some donors, because what matters is whether your 501c3 multiplier is unusually high relative to the average dollar in the donor mix, which is usually coming from other people in very high tax brackets.
People who do have unusually high “501c3 multipliers” include those with employer matches to 501c3 donations. For a 1:1 match for cash donations, I think the multiplier is something like 3.5x, and even higher if you’re donating appreciated assets like equity.[1] I would guess that you need to have a multiplier at least that good to actually be comparatively advantaged [ETA: because I think lotsof the dollars from individual donors in the EA giving space come from people with 1:1 or better employer matches, like Google or Anthropic].[2]
The reason this matters is that if too many people think they’re comparatively advantaged for tax-deductible giving, then non-tax-deductible opportunities (e.g. 501c4 advocacy, political giving, even future 501c3s awaiting their 501c3 determination) will unduly struggle to fundraise, so the best marginal opportunities are often going to be in that category.
If your donation budget is $10,000 (of post-tax income) and you’re, say, a single San Franciscan making $500k (and therefore paying a 42.53% marginal tax rate, per SmartAsset), I think this means you could donate ~$17,400 in cash (a 1.74x multiplier) and deduct that from your income, reducing your tax burden by $7,400 = $10,000 from your post-tax income. Then your 1:1 employer match means the charity gets double that, or $34,800 (a 3.48x multiplier). If you’re donating assets that have appreciated, rather than cash, you also avoid paying taxes on those assets, which drives the multiplier up further.
Some people don’t have an employer match but are giving equities instead of cash, so you might think they’d have an unusually high 501c3 multiplier because their donations both mean they don’t have to pay taxes from selling the assets and they can write off the deduction. By my math/in my understanding of how taxes work, it’s pretty hard for this to get to 3.5x, because:
I believe that when you donate short-term-appreciated assets, you can only write off the cost basis, not the fair market value, and the long-term-appreciated tax rate is low enough (20% for the highest tax brackets) that I don’t think it can get you to 3.5x. But I haven’t totally crunched the numbers here.
ETA: because I think lots of the dollars from individual donors in the EA giving space come from people with 1:1 or better employer matches, like Google or Anthropic
Google’s donation match is $10k per person, and I would guess a bunch of donations from Googlers are unmatched
non-tax-deductible opportunities (e.g. 501c4. . ., even future 501c3s awaiting their 501c3 determination) . . .
I’d note that when an organization files for exempt status within 27 months of its creation, the approval of 501c3 status is retroactive to the organization’s founding. If the approval happens after the donor files their return for the current year, the donor would need to file a 1040-X amended return. So it’s more accurate to say these donations pose a risk of non-deductibility (although I don’t think the base risk is that high).
So people who are willing to file 1040-X, which tax software can do, shouldn’t discount much for application-pending status even if they highly value 501c3 status. This is probably a barrier for people donating through DAFs, employer matching programs, etc. and so I think your broader point that there’s a higher risk of neglected less here is correct.
Even if the organization files late, approved status is at least retroactive to the date of filing.
Consider whether you’re comparatively advantaged to give to non-tax-deductible things.
(Not financial advice.) I think people—especially donors who are giving >$100k/year—often default to thinking that they should stick to tax-deductible giving, because they have an unusually high “501c3 multiplier” due to high marginal income tax rates or low cost basis for capital gains taxes. I claim this is a mistake for some donors, because what matters is whether your 501c3 multiplier is unusually high relative to the average dollar in the donor mix, which is usually coming from other people in very high tax brackets.
People who do have unusually high “501c3 multipliers” include those with employer matches to 501c3 donations. For a 1:1 match for cash donations, I think the multiplier is something like 3.5x, and even higher if you’re donating appreciated assets like equity.[1] I would guess that you need to have a multiplier at least that good to actually be comparatively advantaged [ETA: because I think lots of the dollars from individual donors in the EA giving space come from people with 1:1 or better employer matches, like Google or Anthropic].[2]
The reason this matters is that if too many people think they’re comparatively advantaged for tax-deductible giving, then non-tax-deductible opportunities (e.g. 501c4 advocacy, political giving, even future 501c3s awaiting their 501c3 determination) will unduly struggle to fundraise, so the best marginal opportunities are often going to be in that category.
If your donation budget is $10,000 (of post-tax income) and you’re, say, a single San Franciscan making $500k (and therefore paying a 42.53% marginal tax rate, per SmartAsset), I think this means you could donate ~$17,400 in cash (a 1.74x multiplier) and deduct that from your income, reducing your tax burden by $7,400 = $10,000 from your post-tax income. Then your 1:1 employer match means the charity gets double that, or $34,800 (a 3.48x multiplier). If you’re donating assets that have appreciated, rather than cash, you also avoid paying taxes on those assets, which drives the multiplier up further.
Some people don’t have an employer match but are giving equities instead of cash, so you might think they’d have an unusually high 501c3 multiplier because their donations both mean they don’t have to pay taxes from selling the assets and they can write off the deduction. By my math/in my understanding of how taxes work, it’s pretty hard for this to get to 3.5x, because:
I believe you can also give (some kinds of?) appreciated assets to 501c4s without the 501c4 paying tax on that, unless the 501c4 also engages in certain political activities. So the first half of the logic—“they don’t have to pay taxes from selling the assets”—also applies to (some) non-tax-deductible donations, and you’re left with the writeoff, which is just a ~1.74x multiplier.
I believe that when you donate short-term-appreciated assets, you can only write off the cost basis, not the fair market value, and the long-term-appreciated tax rate is low enough (20% for the highest tax brackets) that I don’t think it can get you to 3.5x. But I haven’t totally crunched the numbers here.
Google’s donation match is $10k per person, and I would guess a bunch of donations from Googlers are unmatched
I’d note that when an organization files for exempt status within 27 months of its creation, the approval of 501c3 status is retroactive to the organization’s founding. If the approval happens after the donor files their return for the current year, the donor would need to file a 1040-X amended return. So it’s more accurate to say these donations pose a risk of non-deductibility (although I don’t think the base risk is that high).
So people who are willing to file 1040-X, which tax software can do, shouldn’t discount much for application-pending status even if they highly value 501c3 status. This is probably a barrier for people donating through DAFs, employer matching programs, etc. and so I think your broader point that there’s a higher risk of neglected less here is correct.
Even if the organization files late, approved status is at least retroactive to the date of filing.
https://www.irs.gov/instructions/i1023
[edited 12⁄2 PM for formatting]