Need a last-minute tax deduction? Try a credit card charity network

We'll forgive you for associating your credit card with getting instead of giving. After all, buying what you want appears to be a credit card's raison d'etre. But if card issuers Capital One, Discover and American Express have their way, you'll start turning to them first when you want to donate to charity.

For several years now, card companies have encouraged cardholders to use their online giving portals -- Capital One's No Hassle Giving, Discover Giving and American Express's Members Give -- when they want to make a donation. Though they won't release data about how many users they have or how much money has been donated through the sites, the card issuers regularly promote their services, especially with an end-of-year holiday advertising blitz.

The idea behind a site such as Discover Giving is that it "kind of acts like a middleman that provides our card members the opportunity to donate to their favorite charities using their Discover card, even if the charity doesn't accept credit cards," says Matthew Towson, a Discover spokesman. 

How it works
First, cardholders find a favorite charity by name, topic keywords such as "animal rescue" or "homeless" or ZIP code. Because all three credit card giving sites are powered by Guidestar, the clearinghouse for nonprofit information, you can select from over 1 million registered 501(c)(3)s; you even get an instant look at each nonprofit's most recent balance sheet.

Once you decide who gets the money, you simply use your credit card to make a one-time donation or to set up a recurring donation that repeats monthly, quarterly or yearly.

From there, it gets a bit more complicated. Because the credit card sites are merely donation portals, your money doesn't transfer instantaneously to the coffers of your favorite nonprofit. Instead, it's transferred into a donor-advised fund operated by online charitable giving platforms JustGive (for Discover and American Express) or Network for Good (for Capital One).

These groups, nonprofits themselves, funnel the money to the right place, explains Andrea Lloyd, director of programs at JustGive. "Donations come to JustGive and we consolidate everything. Then on a monthly basis we disburse checks to nonprofits." The transaction appears on your credit card statement as a donation to JustGive or Network for Good. Your tax deduction statement comes from them too.

Confronting fees
To the cynical, what the card companies get out of operating charitable giving sites are obvious: the whiff of corporate social responsibility, or the cachet of being associated with a very fine cause. But for cardholders, are there real upsides to giving this way instead of just cutting a check directly to a charitable organization?

Perhaps not, if you're really planning on writing a check. But if the thought of digging up an address and (gasp!) licking an envelope stymies you, then donating online through your credit card's giving site is a smart bet, simply because more of your money gets to the charity.

Every time you swipe your card, the merchant pays a transaction fee, typically between 2 percent to 5 percent of the purchase price, to the credit card company. When you're donating to charity, the "merchant" is the nonprofit itself. "Only 18 percent of U.S. rewards cardholders are aware that up to 5 percent is deducted from online credit card donations to cover costs associated with enabling online payments," says Sukhi Sahni, a Capital One spokeswoman. That can cut your $100 credit card donation by $5 -- not a lot, but it adds up. On the other hand, if you give through the Capital One Giving Site, "100 percent of the donation is delivered to the charity since Capital One covers the transaction costs for every donation."

The same isn't true for donations through the American Express and Discover giving sites. Both deduct a 2.25 percent transaction fee to cover JustGive's processing costs. But according to American Express's Members Give site, "This transaction fee is similar to or less than the processing fee the charity would pay if you were to charge your donation with your American Express Card through any other means (over the phone to the charity, through the charity's website, etc.)."

Even those sites occasionally waive their fees, often in the wake of a natural disaster. Lloyd points out that "many of our partners, including American Express and Discover, support disaster relief efforts in times of need." After Typhoon Haiyan struck the Philippines, both promoted fee-free donations for a select list of nonprofits, such as Doctors without Borders and the American Red Cross. According to Discover's Towson, "We also waive fees on special events like #GivingTuesday," a national day of giving in December.

Additional benefits
Even if the complex fee situation turns you off, you may find other benefits to charging your donation at your credit card's giving portal instead of mailing a check, including these:

  • Rewards. Not to be callous, but if you can pile up credit card reward points for doing a good deed, go for it. By donating with your credit card, you accumulate reward points or miles at your usual rate.
  • Ease. Small nonprofits -- think your local volunteer firefighter company -- don't always accept credit cards. They may not even have a website. Credit card giving portals let you make an online donation no matter what -- and someone else licks the envelope.
  • Privacy. Giving to a nonprofit often means finding yourself on the receiving end of an endless stream of solicitations for years to come. By donating at a site like Capital One's No-Hassle Giving, you can determine precisely what contact information JustGive or Network for Good passes along to the nonprofit: your name, your mailing address, your email. Or make it totally anonymous.
  • Noncash donation options. Want to skip money and just donate your rewards points? The American Express Members Give program makes it particularly easy, allowing cardholders to choose between charging the card or donating up to 500,000 Membership Reward Points at a rate of $10 per 1,000 points. Discover and Capital One encourage CashBack Bonus or reward points donations, as well. And because there's no cash involved, your donation won't be hit with transaction fees either.
  • Memorials. All three sites allow you to make a donation as either a memorial or a gift in someone's name (Capital One will even give you a holiday card to announce it!).
  • Tracking. Funneling all your money through a donor-advised fund such as JustGive or Network for Good makes it easier to track donations in one spot, even if they're for multiple nonprofits. Plus, you can cancel recurring donations at any time online.

Tax implications
Though your donation to Save the Children will show up on your credit card bill as a donation to Network for Good, it's perfectly tax deductible, says Jackie Meyer, a CPA and president of Meyer Tax Consulting in Southlake, Texas. The entire amount you donate through the credit card charity networks is eligible for tax deduction.

"In general, as long as the end result is to an IRS-qualified charity, there's no problem contributing via a donor-advised fund such as JustGive." It may be even easier, since "for each separate contribution less than $250, keeping your credit card statement with your tax return records is enough proof for the IRS."

For bigger donations, the IRS wants to see a written acknowledgment from the charity, which JustGive and Network for Good both provide to donors by email. Good news: You get to deduct the contribution based on the date you charged it, not the date you paid your credit card balance. With donor advised funds you even get the added benefit of donating by Dec. 31 to claim a deduction in the current tax year, then deciding later which charities will get the funds.

See related: Credit cards quickly fund charities, deliver tax deduction, The ultimate gift: Paying off someone else's debt, Charity gift cards let recipient donate to favorite cause

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