Giving Without the Tax Break: Seeking Happiness and Health
New tax law reduces giving, but you can adjust and help others
The new tax law created a puzzle for philanthropic-minded Americans. By slashing tax rates, it put more money into people’s pockets, thus freeing up more cash for them to potentially donate to nonprofits. But it also crimped taxpayers’ ability to take deductions for smaller gifts.
Removal of the financial incentive to contribute to worthy causes has elevated the roles of generosity, altruism and a sense of societal good when making small gifts. But it has also highlighted other reasons people may give, including guilt, duty and perceived prestige. That means there are still motivating factors to give and gratifying ways to get your charitable fix without getting a tax break. And they may even lead to self-improvement. Call it charity-based self care in the 21st century.
A 2014 study in the Journal of Economic Psychology showed that households that give to charity have lower risks of high blood pressure, cancer and heart attacks, experience less stress, and have stronger immune systems. A 2013 Harvard study found that giving more money to charities that explain how the gift is used to help another person yields higher levels of happiness for the giver.
All that well-being and joy can be had even though the tax break for smaller donations disappeared when the new law doubled the standard deduction, to $12,000 for single filers and $24,000 for married couples, starting in 2018. The increase eliminated the tax benefit of listing the deductible value, or itemizing, smaller donations on your federal return. With the standard deduction now higher than the deduction value of smaller gifts, charitable giving has declined. Individuals gave an estimated $292 billion to charities in 2018, the first year of the new law, which is a 1% drop from 2017’s level, according to Giving USA, a research group. (As my colleague Carla Fried reported, there are evolving strategies for maximizing tax benefits under the new law. But for most smaller givers, the tax break is gone.)
Here are some ways to contribute charitably and feel good about it — even if you no longer get a deduction.
Volunteer. Whether for your local soup kitchen, neighborhood cleanup crew or school tutoring program, volunteering your time and effort just might be the new charitable giving.
In the years before the new law went into effect, community organizations saw record-high volunteer hours, according to the University of Maryland’s Do Good Institute. But fewer individuals contributed to those longer hours. Among adults ages 22 to 35, 26% volunteered in 2003, but only 22% did so in 2015.
Would-be volunteers who haven’t yet pitched in are losing out on some serious gratification and personal growth, according to social scientists. Economists have found that people have a stronger desire to donate their sweat and knowledge than they do their cash. One reason: Volunteering has a tangible and immediate impact that lets volunteers see themselves as kind human beings helping other people. That feeling imparts what scholars call a sense of “warm-glow giving”: You immediately, and happily, see the result of the four hours you spent serving hot meals to hungry people at a homeless shelter.
Overall, some 63 million Americans currently volunteer about 8 billion hours of their time each year, providing what the charitable-group organization Independent Sector calls “a driving force” of civil society. But the recent decline in the number of volunteers means that there’s plenty of warm glow still waiting to emerge — and be enjoyed by the volunteer.
Think small and focus your donations on local nonprofits. Giving money to a tiny nonprofit like your local food bank instead of, say, the United Way or Nature Conservancy can provide more bang for your buck and more emotional gratification. That in turn can outweigh any angst over the loss of a tax deduction.
The gratification comes from knowing that you helped a charity reach its smaller fundraising goal. With smaller causes, you may end up giving as much as you would to, say, the Red Cross, but you’ll feel more connected to the charity’s smaller, more attainable objectives — evidence of what scholars term “the completion effect.” As charity database GuideStar explains it, “making a $100 donation to a project with a $1,000 goal is more satisfying than giving $100 toward a $1 million goal.”
Find micro-projects within global philanthropic organizations. Thinking small is particularly suited for millennials, who tend to seek out organizations that reflect their personal values and want that “I’m making a difference” feeling. But you don’t have to donate locally to achieve that.
One example: One Girl Can, a Canadian purpose-driven philanthropy that supports girls’ education in Kenya and Uganda by building and renovating schools, mentoring students and raising college scholarship funds for girls. Although it fundraises globally, it also acts small, by making some students into single causes.
For example, the organization is helping a young girl named Fatuma to raise the remaining $2,975 she needs to cover the cost of university tuition, living expenses and a laptop as she pursues her degree in biomedical engineering. By donating to a One Girl Can micro-project focused on an individual person, you can say that you actually helped put that girl through college. The value of that feeling can outweigh your lost deduction by letting you frame your gift as a social win, not as a tax loss.
Put a capitalist twist on philanthropy through socially responsible investing. Put some of your newfound cash into socially responsible investments, such as a mutual fund that invests only in companies with a broader environmental or social goal, like working to save the Amazon forest or pushing for more women and people of color on corporate boards.
Sometimes called “green,” “impact” or “ethically responsible” investing, SRI has exploded in popularity in recent years. According to Business Wire, funds using SRI strategies managed $12 trillion in assets at the start of 2018, up 38% from two years prior. Here’s the charitable twist to what’s often called “doing well by doing good”: Investing in companies that promote ethical and sustainable ways of doing business can fuel job creation and potentially help reduce inequality — thus creating a world that can make soup kitchens and food pantries less needed.