By ZACH NOBLE
Maybe you've been donating to charity all wrong.
If you're a giving-minded religious person, you've got three major destinations for your hard-earned money: your own pocket, God's pocket and Uncle Sam's pocket. How much you choose to put in pocket No. 2 can directly impact how much Uncle Sam gets to forcibly take from you.
That's why giving cash is terrible (because you can't track it).
It's also why giving a little bit every week stinks.
Only donate to charity one year out of every couple
This whole piece assumes that you're on board with donating some money to a church or to charity every year. It's not about whether to tithe or not, and it's not about the relative merits of different churches or charities (though you should absolutely research before donating and watch out for "sneaky reporting" on charity financials).
The plan to consider: Donate one year out of every three, four, five years. On the off years, don't donate a penny.
It all comes down to the standard personal deduction.
The way the tax code is written, you get a benefit on your taxes (less of your money is considered taxable, so you pay less) if you donate to charity -- but only if you itemize your deductions. But to keep people from having to itemize every year, the IRS offers a stock personal deduction. For a single 20-something with no disabilities, the standard personal deduction was $6,200 in 2014. (Calculate your own deduction here.)
What that means is, if you're single and your deductions are less than $6,200 in a year, it doesn't matter if you gave $1 or $6,199 to charity that year. Your taxes stay the same.
But what if you bundled up a few years' worth of charitable giving into one year? Cha-ching.
Scenario 1 (the bad one)
You make $50,000, and you donate $5,000 to charity.
You can deduct $5,000 (below the line) from your taxes. But the standard personal deduction is $6,200, so you don't bother itemizing.
You do this for three years, and for each of those three years, you don't actually get any tax benefit from donating to charity.
Scenario 2 (the good one)
You make $50,000. You decide to wait a year. No charity. But you start stockpiling cash. Take the standard $6,200 deduction.
In year two, you live frugally, donate $15,000 to charity.
Year three, back to no charity. Back to standard deduction.
In each scenario, you've donated the same amount to charity. But in scenario No. 2, you see your tax bill plummet because you can deduct $15,000 -- some $9,000 more than the standard deduction.
What are your savings in real cash terms? If you're at an average effective federal tax rate of around 13 percent, you'll save about $1,200. But remember, that's just one time; you can pull this off maybe 20 times over the course of your lifetime. That would put your lifetime savings close to $25,000—and that's assuming you never get a raise.
My wife and I are giving this strategy a shot this year, kind of accidentally. We got married last year, and due to the craziness of that year we just kind of ... didn't donate anything to charity. So this year we're playing catch up anyway, and I started thinking, "Hold on, this lumping thing makes a lot of sense!"
Of course, it turns out I'm not some genius who found an unknown loophole. When I asked a seasoned lawyer and CPA about my plan, he called it a "perfectly reasonable strategy," and then informed me it was called "bunching deductions" and that personal finance sites had already written about it.
Well, I'll spread the word anyway. If you plan to donate to charity and you're able to save and think ahead, bunching deductions is the way to ensure more of your money goes to yourself and charitable organizations or God and less to government coffers. (And let's be honest -- there's a huge amount of wasteful government spending that could have been put to better use elsewhere.)
There's just one solid argument I can think of against bunching deductions.
Maybe it's bad for your church
At a recent Wednesday evening talk, Fr. James Searby (a minor celebrity among Northern Virginia Catholics) made the case that young people need to support their churches. Our generation is transient, flitting from one church to another and never putting much in the offering basket. Churches provide services, he reminded us, but they struggle when they don't have a steady stream of donations each week.
So, if you have a church and you like what it does, you may want to pause and consider whether your church would be OK getting donations in big, one-off donations instead of weekly donations every year.
Personally, I think churches can handle the planning.
Do the math, talk to your pastor, and I hope you'll come to the same conclusion I did: With a little foresight, bunching deductions is just the smarter way to be charitable.
Note: This post has been updated to clarify above- vs. below-the-line deductions.
Zach Noble is a journalist who has covered everything from the OPM hack to a rescue dog's retirement party. He's been wrestling to reconcile his bleeding heart Catholicism with his pragmatic libertarianism since that freshman year love affair with Ayn Rand. He tweets erratically as @thezachnoble.