I’m helping my favorite charity get $20,000 this year, but it’s only costing me half that. And it’s not because of a match. I want to show you how I’m doing it because I think a lot of you can use this same tactic. As a caveat, however, because this approach is slightly unusual, there may be some risk.

Tl;dr: If you’re in the U.S. and pay low taxes / take the standard deduction: Give the money you would donate to someone who itemizes their taxes and have them donate it instead.

The Idea:

Charitable donations are tax-deductible. This means if your income this year is $100,000 and you donate $10,000 to charity, you would be taxed as if your income was $90,000. If you pay 25% in taxes, you’d then get $2500 off your taxes. However, with the way taxes work, most people just take the “standard deduction”—$12,000—rather than itemizing their deductions. Itemizing is only worth it if you have over $12,000 of tax-deductible items in the first place, which many people don’t have. So, any donations before the $12,000 mark end up not deductible, in practice.

But you can fix that. Just give the money you would donate to someone who already itemizes their deductions, ideally in the highest tax bracket possible, and have them make the donation instead. Then, they can make a much larger donation than you would, while making up the difference in their tax return.

Example:

Bob makes $100,000 per year, plans to donate $10,000, and has no other tax-deductible expenses. Alice already itemizes her taxes; she also makes loads of money at her Silicon Valley startup, putting her in the highest federal tax bracket (37%) with a high state income tax (13%). Rather than getting zero tax compensation, Bob gifts the $10,000 to Alice. So with Alice’s 50% tax rate, Alice can donate $20,000 to charity, get $10,000 back on her tax return, and overall come out entirely neutral from this transaction.

Bob just doubled his charitable giving.

Legality:

Disclaimer: These are my interpretations of the law, not professional legal advice. I ran this plan by an accountant and he gave it the thumbs up, so if there are legal issues, they’re not obvious ones.

Is this legal? Bob doesn’t have to pay taxes on his gift to Alice unless he hits the Lifetime Gift Tax Exemption of $11.58 million. And the gift doesn’t even count towards that as long as Bob’s gifts to any one person are under $15,000 per year. Bob doesn’t have to note <$15,000 gifts on his taxes, and Alice never does. Staying under the $15,000 threshold also means neither Bob nor Allice have to file any paperwork for the gift.

Possible Objection 1: IRS publication 526, p. 6: "You can't deduct as a charitable contribution [...] The part of a contribution from which you receive or expect to receive a benefit"—My understanding is that this is intended to apply to benefits received from the charity, such as free tickets to a play for hitting a donation threshold. In my opinion, Alice being money-neutral after this interaction plays it even safer. Example: The IRS doesn’t care if you take your friend out for ice cream because you’re proud of him for donating, even if he thought you might be the type of person to do that.

Possible Objection 2: "What is considered a gift? — Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return." —My understanding is that from the IRS’s perspective “Alice donating to a charity Bob likes” is not giving anything of monetary value to Bob. Example: The IRS doesn’t care that when your dad gifted you money to buy a house, he is also getting emotional value from you not living on the streets.

Possible Objection 3: Online transfers totaling $10,000 or more within 24 hours get flagged by banks and reported to the IRS as potentially suspicious. Even for someone doing nothing wrong, IRS audits are a major pain, so many people try to avoid doing anything that could increase the chance of one. Bob could split the transfer up, but he should be careful of structuring laws (though they seem to primarily apply to cash transactions and to businesses; the 2019 RESPECT Act also made it illegal for the IRS to confiscate legally acquired funds due to structuring, but it’s unclear if structuring could still have other legal consequences).

Complications:

Trust: Ultimately, Bob is giving Alice a monetary gift and trusting she’ll donate it to the charity he wants. Alice is ideally a trusted friend or family member of Bob’s. But even if not, Bob can simply do multiple smaller transfers to Alice, with Alice sending receipt confirmation of her donations in between the transfers. This can build up trust between the two, though it’s possible it could be pushing the legal definition of a gift. Alice can even make the donations in Bob’s honor if Bob desires more affiliation with the gift. Conversely, if no credit is desired, the gift can be given anonymously using a donor advised fund (described later).

Fronting the money: Here Alice is providing money up front, which she then gets back later. If Alice doesn’t want to do this, Bob could lend her money and have her pay it back after she gets her tax return. (In practice this is a bit silly because Alice almost certainly makes way more money than Bob.) If the donation is done near the end of the year, Alice only needs to wait a few months though.

Deduction caps and dropping tax brackets: If Alice donates a lot of money and deducts a lot of her income, then later donations could start to fall into lower tax brackets. If Alice donates more than 60% of her income in cash, 30% of her income in stock, or 50% of a mix, then further donations are also not tax deductible. So while there could be multiple Bobs per Alice, there is a limit.

Variants:

None of your friends / family have high earned incomes: If you know other Bobs who are EAs, none of whom itemize, you can still do somewhat better for yourselves by pooling your donations to over $12,000 total.

The above, but you don’t know other EAs: You can also do somewhat better for yourself if you clump your donations between years. E.g. If Bob would be donating $10,000 per year, he could instead donate $30,000 every 3 years, getting $18,000 tax-deductible. This variant can be combined with the above one, and definitely has no legal ambiguity on its own. However, consider your personal chance of your future self no longer being an EA.

You’re still worried about doing something that isn’t 100% proven legal: This idea is certainly legal if there is no “agreement” from Alice that she’ll donate the money that Bob gives her—people donate their Christmas/Birthday gift money all the time. If Bob trusts Alice to be a particularly charitable person who would donate a gift Bob gave her, no agreement required, then it seems impossible for there to be any legal problem with Bob gifting Alice money and her donating extra. Most people don’t know someone like Alice in this scenario though.

Further Tax Improvements (none of these are on the same order of magnitude as my described idea, but they’re less weird, and the improvements can stack):

• 2020 only, standard deductors can deduct up to $300 in donations via the CARES Act
• More general advice (main takeaway — donate appreciated assets instead of cash if possible)
• Set up a donor-advised fund
• Watch for opportunities to get your donations matched, especially from your employer. Note that if Alice is able to do this, Bob’s donations could end up as much as 4x higher (assuming the employer doesn’t have a specific clause against this).