Q:

Subject: Donated Goods

Kerry,

I attended a multi-street neighborhood garage sale last week.  It challenged my thinking.

 

If I spent a day selling all that I donate to Goodwill it would generate nontaxable cash that I could self-direct to individuals or groups that are in need or doing good things but not a 501(c)(3).

 

Ironically, I saw the garage sale being beneficial for the neighbors--they were out among each other being very neighborly.

A:

I'm not sure if there's a question in there or just your observations.

In regard to the observation, they do echo some points I have commented on several times over the years. 

First is the actual in-pocket dollar value of a deductible donation. It never ends up being as much as selling the item and keeping the cash because that would only be the case if one were in the 100% tax bracket.  With most people having an effective tax rate of around 33%, donating an item worth $200 would return them less than $67 in actual tax savings.  If they were to sell the item at a yard sale (assuming at below cost in a non-business manner), they would have $200 in their pocket.

The other point is where the donations go to.  I have long been a very vocal critic of huge national and international charities that spend more of their revenues on internal costs (salaries, benefits, other overhead) than on the actual programs they are supposed to be taking care of.  Whether any of your donations to such groups will every make their way to helping real people is always a mystery.  What is more effective is to either donate to locally run charities with small inexpensive overheads or to just give the money and items to the actual people who need them.  In those cases, you can be much more assured that some good will come out of the donations. 

This is a very common situation here in the Ozarks, where there is a lot of generous giving directly to people whose homes have been damaged by fires and tornadoes, as well as for those who have suffered from unexpected medical tragedies.  As a volunteer firefighter, I do see a lot of such cases.

While there is obviously no income tax deduction for such direct donations, that is the last thing donors care about.  Another point I have been making for decades is that, contrary to popular belief, people do not make charitable donations because of the income tax benefits. They do so because they want to help out a certain cause.  I used to ask that very question in many of my seminars over the years (How many of you make donations because of the tax deductions?) and nobody ever raised their hand.  This is why I don't trust those who claim that eliminating the estate tax will harm charities.  It's a bogus argument that has no basis in reality, and anyone making such claims has no credibility on such matters.

A bit of a long rant on this point.  I hope I addressed your points.

Kerry Kerstetter

 

Follow-Up:

Kerry,

 

Thanks for your insights re donated good.  I plan to hang onto my goodwill pile until next garage sale season and will enjoy letting those proceeds go to those needing help in my community.

 

Regarding established charities, I had an experience that made me rethink my charitable giving.  I support the following 501(c)(3) charities:

 

Operation Blessing continues to truly help LA and MI with hurricane cleanup as well as supports its general purpose in foreign countries.  I saw the former Presidents in LA asking you to send money to them while they stood in front of an Operation Blessing truck.

 

Wounded Warrior Project supports the injured soldiers with clothing and articles after coming off a battle field with nothing to making modifications to homes to accommodate injuries to providing ski trips and other events to help the soldier reacclimate.

 

Feed the Children helps from poor USA neighborhoods to children all over the world.  I was most impressed when they were able to convert their general concept to being on the scene within hours of the incidents with support supplies and people to help with the OK City Bombing and World Trade Center and LA/MI.  They had some internal control problems in TN a year back but was very quick to fix.  *Their administrative costs were up last year when they did a lot of TV ads but otherwise is minimal.

 

Taproot Theatre (Seattle) provides touring road shows to Seattle area schools on handling bullying, personal behavior, substance abuse, diet/exercise, as well as provides an acting studio for kids, and has awesome clean, thought-provoking plays on their mainstage.

 

NW Medical Teams

 

The above charities provided me their 990s and the executives receive little compensation and their administrative cost* is very minimal. 

 

I also found Wall Watchers a good source for information.  http://www.ministrywatch.com/mw2.1/H_Home.asp 

 

Thanks for listening to my rant and providing your wise counsel. I think our charitable giving needs to be considered wisely like any other expenditure or investment.

Warm Regards,

 

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 8/27/2006 06:45:00 PM Send this post: