Giving From Your Heart (Using Your Head)

The ancient truism, “from those whom much is given, much is expected,” has been taken to heart by many an intelligent individual, but many fail to take advantage of the way that Uncle Sam actually supports this mission– primarily through tax deductions. Turns out, charitable giving can be a great way to make the world a better place while not breaking your bank. Here are just a few ways to maximize your tax benefits from charitable gifts:

  • Check that you’ve donated to an eligible organization. This is the first step when itemizing deductions. TaxACT suggests searching “the IRS’ database of Exempt Organization Select Check at Most religious organizations and government agencies are eligible, even if they’re not listed in the database.”
  • Donate household goods, real estate or stock. Recall that any personal property in good condition, such as clothing, furniture, or other household goods, may be donated and then written off for their fair market value. Even illiquid assets have a place in the world of giving, as you are able to receive an income tax deduction for the fair market value of the gift. Donating stock is a great way to avoid paying capital gains tax due on the appreciation, and you will be able to deduct the fair market value of the stock on the day of the gift.
  • Get a receipt for donations. For cash, this would mean keeping a bank record of the contribution with the name of the charity, date, and amount of the gift. Additionally, if the amount is upwards of $250 then you will need a written acknowledgement from the charity itself. You should follow the same logic for noncash donations, including a description of the items and an appraisal for collectibles.
  • Remember that you can be reimbursed for vehicle expenses. Therefore, consider logging miles when volunteering for a charitable organization. Investopedia notes that you are allowed to claim 14 cents per mile and additionally must obtain a written confirmation from the charity for the volunteer driving.
  • Keep track of your carryforwards. Since donations have ceilings in relation to deductions from your adjusted gross income (AGI) that usually hover at or below 50%, remember that the excess of that can be carried over to apply to next year’s income tax deduction. An article from Investopedia attests that you are able to “carry them forward for up to five years, after which time, they expire and you can no longer use them. If you have carryforwards, track them carefully so that you use them up before expiration, if possible.” For example, if your AGI this year was $50,000 and you gave away $30,000 in cash to a qualifying organization, $25,000 (50% of AGI) may be written off for this year and the extra $5,000 may be carried over into the next five years before it expires.
  • Even attending a fun charity event counts as a tax deduction, for the amount exceeding the fair market value of the event. Moreover, if this charity event happens to have an auction, you may calculate a tax deduction worth the amount above the fair market value for an item that you purchased from the auction. For example, if you won a vacation in the Dominican Republic valued at $7,000 and you paid $10,000, you could itemize a deduction of $3,000.
  • There are many easy tools out there to assist in keeping track of all your good deeds. The Forbes article “4 Steps to Maximize Your Charitable Giving Tax Break” specifically recommends the ItsDeductible App. Others include iDonatedIt and UDoGood.


Unfortunately, not every heartfelt act of charity is tax deductible. Keep in mind that donations to charities that operate under foreign laws or giving time or blood to a blood bank aren’t tax deductible. In conclusion, the best guidelines to follow when giving with your heart as well as your head are to keep track of every item, estimate the value as accurately as possible, and to never underestimate the exponential power of a good act, even in the eyes of Uncle Sam.


Inflation: the Risk of Holding On

Especially trailing the Great Recession, many individuals are tempted to hold onto their savings in the form of cash or cash equivalents in an attempt to preserve their value. There’s no risk in this, right? In reality, this may not be the wisest decision to preserve your wealth, as the average inflation rate has traditionally hovered around 3%. This means that the dollar in your hand will lose 3% of its purchasing power within the next year; you will be able to buy 3% less stuff with your money a year from now. Yet, though it may seem counter-intuitive, this situation is highly preferable to the alternative—deflation—and nicely aligns with the Fed’s goals of stable prices. Investing the majority of your assets where you feel comfortable (whether that be bonds, ETFs, equities, etc.) and especially seeking a financial advisor’s advice is by far your best shot at preserving and growing your wealth.

Why is slight inflation preferable? Inflation is “the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling,” as the wonderful Investopedia explains. In order to facilitate this inflation, the Fed exercises an “elastic” currency, meaning that they print money out of thin air (the value of money is not tied down to a gold standard.) Although it may seem counterintuitive, this allows the Fed to rapidly react to changes in the economy and prevent the dollar from deflation, which is the worst case scenario. Deflation, which occurs when there is a shortage of money resulting in an overall fall in prices, is dangerous since it “results in lower prices being forced upon the market which are not the result of normal market forces” (“Why Deflation Is Bad And Inflation Is Good: Monetary Policy 101.”) This is really bad for people looking to borrow money, so essentially all of us if we someday wish to make a big purchase, because lenders will definitely want to hold onto their cash since it will be worth more in the future than it is currently. As you can deduce, deflation spells disaster for interest rates. If inflation goes up, interest rates can go up as well to naturally lower demand for borrowing money and keep the economy from hyper-inflation. But, interest rates are not able to go below 0%, thus deflation, and the economy is stuck in a downward spiral where no one wants to spend, much less loan out, money. To quote the previous article, “once an economy slips into a deflationary spiral, there is little the Fed can do, and that is why they deliberately error on the side of caution and generate a bit of inflation. It is simply an insurance policy against the destructive consequences of deflation.”

How do I beat inflation? Unfortunately, since most bank accounts offer really low interest rates for savings, usually around 1%, holding the primary amount of your wealth in cash means that since it’s not growing past 3% to make up for inflation, it’s shrinking. The Forbes article, “Why It’s A Bad Idea to Keep Your Retirement Savings in Cash,” highlights the reality that “in a sense you’re actually losing money every year. ‘The cost of goods and services goes up every year by about 3% on average, as inflation,” says David Blaylock, a LearnVest certified financial planner™ in Fort Worth, Texas. “If you’re earning 1% on your money in a savings account, you’re arguably losing purchasing power every year due to inflation. Growth isn’t even a possibility.’” To begin handling your assets with greater diligence, a good rule of thumb is to look at keeping about six to nine months of savings liquid in case of emergency. From there, assess your personal risk tolerance and look outward to investing and safeguarding your savings through slowly investing it back into the market where you feel comfortable. Luckily, in our developed society we have access to many great financial resources to guide us in this process, the foremost being a personal wealth advisor.

In conclusion, investing does not have to be a risky gamble embarked upon by the ambitious wealthy, rather it is a great way to safe guard against inflation risk while providing the opportunity to gain additional value on your savings.

Understanding Financial Decisions in Light of Opportunity Cost

“One of the key lessons of the recent financial crisis is the importance of personal financial literacy. Besides improving their personal financial decision making, teaching students economic principles will help them as citizens understand and make choices about many of the critical issues confronting our nation.” –Ben Bernanke, Chairman of the Federal Reserve System.

Just like other healthy habits, patterns of smart financial decisions include adopting a new mindset. When it comes to money, this frame of mind comes from looking at each personal financial decision in light of opportunity cost. Opportunity cost is crucial because we value other things besides money, think time and energy, and we must take them into account when we assess a choice. It looks beyond the direct monetary costs in each decision to the indirect costs, what you lose when you chose one alternative over another.

For example, imagine that you are at your favorite restaurant on Friday night and confronted with the decision of which dinner to choose. You’ve had a long week at work and are tempted to choose the $20 steak meal, but you also could be satisfied with a sandwich which costs only $10. Additionally, there is a new movie out that you wanted to see sometime this weekend. If you keep opportunity cost in mind, you are able to assess the choices more clearly, beyond the here and now, since you realize that you would be giving up both the sandwich and the movie for the enjoyment of the steak meal. So the question is: which allocation of resources will make you happier overall?

In the big leagues, opportunity cost becomes an even bigger player when it comes to purchases like a car, house, or college education. You can weigh the pros and cons, stare at your bank account, but a clear understanding of the next best way that you could allocate your money is a necessary thing to grasp. All decisions require sacrifices, and being able to visualize the alternatives to a course of action will serve you well when deciding which sacrifices you are most willing to make.

To conclude, opportunity cost, defined by Investopedia as “the benefits you could have received by taking an alternative action,” is an essential tool to help you make the best use of your money and resources.