IMPORTANT: This post refers to US laws and tax statuses. It is not a substitute for tax advice from an accountant or tax lawyer– just some general information that I’ve learned in the last year receiving donations and grants as an individual and working with 501(c)(4) organizations that may help point you in a more favorable direction. The US tax code is tricky so you must not take this post alone as guidance in making your tax or donation decisions.
It’s hard to fund political activity in EA. We don't have the infrastructure yet. Most EA grantors are 501(c)(3) organizations with limits on how much "lobbying" or "attempts to influence legislation" they can fund. Many of those orgs have gone a step further and restricted their donations to 501(c)(3) charitable or organizational purposes only. For instance, although Manifund is able to fund my advocacy activities as long they don’t make up a “substantial” part of the grants they fund, and ultimately drew up a contract for me that reflected that, the original Manifund applicant contract I was presented with specifically requires the signatory to be doing 501(c)(3) activities.
Individuals can give money to whomever they want, but it's only tax-deductible if it goes to tax-exempt entities with a 501(c)(3) designation. Donations to 501(c)(4) social welfare orgs are not tax-exempt, nor are donations to individuals.
Tax-exempt status matters less that you might think for the small-time donor. As I know from giving my Giving What We Can donations, it doesn’t even matter if they were tax deductible unless your donations exceed the standard deduction. According to NerdWallet, “The 2022 standard deduction is $12,950 for single filers, $25,900 for joint filers or $19,400 for heads of household. For the 2023 tax year, those numbers rise to $13,850, $27,700 and $20,800, respectively.” (Here is the IRS tool for calculating your standard deduction.) If your donations don’t exceed these amounts, you should consider that, tax-wise, you’re in a better position than large foundations to donate to political advocacy or lobbying.
Giving individuals gifts as opposed to grants is a much more favorable tax situation for the individual, who will generally not have to pay tax on gifts received but does have to pay tax on grants received. The giver may have to pay gift tax, but depending on the situation you may prefer paying gift tax to overhead being taken out of the donation to run the granting program and the (individual) recipient being taxed on the grant. Consider that, if you are donating to an org so they can support individuals, you might want to cut out the middleman.
The majority of people reading this forum post probably don't have to pay gift tax at all! Gift tax has two exclusions:
The two exclusions are cumulative. This means that only gifts above $17,000 given to any individual in any single year counts towards your lifetime exclusion limit, and only once that is above $13M would you need to start actually paying the gift tax.
If I understand correctly, the gift tax policy was primarily designed for closing loopholes where wealthy people tried to avoid inheritance/estate taxes via giving gifts. So for people who aren't very wealthy (which is the majority of EAs who aren't earning-to-give[1]), I don't expect the gift tax to ever be financially relevant to them.
(Not a tax lawyer or an accountant. This is not legal advice. Also speaking from an US context only, of course).
it's usually more tax-efficient for earning-to-givers to donate money to 501c3s, as you get money back in a tax return.
I want to flag that overheads for granting programs in EA are often very low, in relative terms. For example, EA Funds spent roughly 700k last year in overhead[1] and distributed >30M, for an overhead ratio of <2.5% [2](though I expect it to increase substantially this year and in upcoming years).
In generally I'd expect overheads in EA granting programs to be too low rather than too high, in the sense that the world will be better off if a higher percentage of resources in EA granting programs can productively be allocated to grantmaking, operations, monitoring and evaluation, etc.
Technically the money for overhead is raised from external private donors rather than from public donations due to past commitments made from EA Funds. But of course money is fungible, and going forwards I'd like to drop this commitment for LTFF and EAIF.
Though the Global Health and Development fund incurred ~0 overhead, so we might want to exclude that. But even if we're just looking at EA Infrastructure Fund and the Long-Term Future Fund, and assume 100% of overhead costs goes to those two funds, the overhead ratio still ends up being <4%.
I’m confused about the lifetime exclusion and so I didn’t want to advise anyone that they might not have to pay on gifts of over $17,000 in a year :/ I would love to get an answer from a tax lawyer or accountant on this!