A donation is a “gift” provided by a charity in exchange for a donation. When purchased, it’s like a gift. Common gifts for charitable car donations include airline tickets and vacation packages. They are not gifts, and there are conditions that need attention.
Businesses know the value of free advertising and one way to do it is to deal with charities. Businesses provide access to the volume of their services or products in exchange for charities that offer them publicly as an incentive to donate. This is a win-win situation. Charities receive donations from patrons, patrons receive “siffs” in return, and companies that donate siffs receive free advertising. Everyone is happy
Let’s say that when you make a donation, a charity offers a “discount” for two nights at a hotel in a popular tourist destination. Wow. But what most people do not know is that you must declare the value of Spiff as your tax income. And yes, you will pay income tax on that amount. This effectively reduces the net tax credit associated with donations. If the difference is negligible, this isn’t a big deal, but a large difference can almost completely offset the allowable tax credits.
Often, these stiffs turn out to be better deals than to get or negotiate yourself.
Looking for tickets to the hottest shows in town? Donate your car and receive two of these tickets. For some people, the intangible value received far outweighs the tax consequences.
Where have you been trying to find the latest and hottest toys for your kids and grandchildren? Charities keep up with these things and sometimes secure the hottest quantities of new products. They then run a promotion that encourages patrons to make large donations instead of receiving these popular items as stolen goods. How do you price a child or grandson’s happiness even if the donation consumes a lot of the value of the actual donation?
Let’s look at the downsides of this practice. For example, suppose you are looking for a $500 tax credit and you have received two tickets for a total of $100. Technically, you are entitled to a $400 charity tax credit. You also need to declare the $100 value of the ticket as income. This is taxed at the same rate as the rest of your income.
Another drawback of this practice is that it is often difficult to use or convert the stiff. From time to time, companies donating Siffh set redemption rules so that it is very difficult to actually receive the assigned value and declare it now as income. These types of companies want to “cash”, so to speak, by taking charitable tax credits, but they don’t really want to lay out cash, products, or services at the time of redemption.
There is also the possibility of malicious type abuse. They may make a legitimate donation and receive a “spiff”, but they turn around and sell it at a higher price, especially for tickets to must-see events and popular new products. This can negatively affect the reputation of the charity that it publishes.
The lesson of this story is to educate yourself and deal with well-known and reputable charities.
It’s a sequel.