3 donation mistakes that will cost you

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child making donationThis might seem like an odd title. After all, don’t ALL donations cost you? Here though we are talking about donations that cost you, well, a little more than you bargained for.

1. Clicking without recording the donation

This is simple but so easy to do! You’re reading about a cause on the web that touches you; the donate button is conveniently placed at your fingertips and you click away. That’s a wonderful initiative but what did it cost you if you failed to record it and claim it on your taxes?

In Canada, the charitable tax credit for gifts over $200 in annual claims is 29% federally, and about 11% to 21% provincially, so these are not to be missed. For example, a gift of $100 (claimed in a year that includes $200 of other donations), will result in a charitable tax credit of about $50, and if you haven’t donated within the last 5 years, it will be worth about $75. By claiming the donation, the net cost is $25 – $50, but by clicking and not recording, your cost is the full whack: $100.

Obviously it’s good to group charitable donations to get the biggest bang for the buck, so remember you can have one spouse file both partner’s donations and you can carry them forward for up to five years.

Cam and Zarah each donate $200 a year for five years and file separately every year. They’ll have donated $2,000 and received $475 in tax credits. However, if they carry them forward and file them on only one return, the tax credit could go up to $1,200, an increase of over 150%!

2. Charging for the donation without paying

There are so many deserving non-profit organizations and so little time, so sometimes the easiest thing to do is to use your credit card to make the donation now and pay later. But your great intention sometimes run smack into harsh reality – the money is no longer there when you need to pay down your balance. No worries though as your credit card company is happy to have you carry the balance and rack up those crazy interest expenses.

Above, we used the $100 example which claimed properly had a net cost of $25 – $50 or an average of $37.50. If we carried the donation on a credit card for a year at 28%, it would have cost you $65.50 – a 75% increase!

And this could get worse. After all, how often have you regularly cleared your credit card debt? There’s a good chance that $100 could be kicking around on your balance for a lot longer than a year. Plus, it could contribute to your poor credit which could keep you paying higher interest rates on everything you purchase for a very long time.

3. Giving a donation without checking the charity

There are plenty of non-profit organizations in Canada that do great work, about 170,000 in fact. A little more than half are registered charities with the CRA, so that they can provide you with charitable tax receipts for your donations. If tax credits motivate you, as they are for many Canadians, check to make sure that the organization that you’re giving your money to is on the registered charity list.

In summary, give generously, but give some thought about how you do it! Donating is good, but losing on tax credits and increasing you high interest debt is bad, so be sure you have a plan before hitting that donate button. Sadly, there are people who prey on nice folks like you who like to help others, and they’d like nothing more than to help themselves to the money in your bank account. So make sure you give to a registered charity so that your charity costs you only what you actually donated.

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