You’re probably familiar with the ins and outs of purchasing something with your credit card – it’s not especially tricky as long as you stick to the “always pay it off” rule. But when you give something with a credit card, like making a contribution to a political campaign or a conation to charity, that can get more complicated.
Even that, though, doesn’t compare to being on the opposite end of the spectrum, where you are the one who is running a charity or political campaign and who is responsible for accepting those credit card donations. There are all sorts of credit card rules you’ll have to navigate.
So what’s a civics-minded credit card user to do? Well, you’ll want to understand the ins and outs, the ups and downs and tripwires and minefields that can befall anyone when it comes to money, charities and political campaigns.
Rules to know for credit card charity donations
That isn’t to say that you shouldn’t use your credit card when donating to a charity. There are good arguments that you should.
Donating by credit card is probably the most common method for donating at this point. For most donors, it is the most convenient option to make a contribution and eliminates the worry about a check being lost in the mail.
So no need to put your credit card back in your wallet. Here are some rules of the road governing credit cards that charitable or political-minded cardholders will want to be aware of.
Some of your donation will go to credit card processing fees.
This isn’t any secret, and most of you reading this are probably aware that if you donate $50 to a charity or a political campaign with your credit card, the entire $50 won’t reach the charity. Typically, 1.5% to 3.5% of your money will be eaten up by a processing fee.
When you buy a pizza or a shirt, the pizzeria or retailer, and not you, pays that processing fee, and it’s just considered the cost of doing business. Debit cards have processing fees, too, in case you’re wondering, though they tend to be lower.
So if you’re donating $50 via credit card to a charity or a political cause, they could see as much as $1.75 disappear from that donation. That may not be a big deal, to you or the nonprofit. It’s $1.75, and getting $48.25 is a lot better than getting nothing.
But if you have deep pockets and are donating $10,000 to a homeless shelter and planned to use your credit card, up to $350 might go to the credit card instead of supporting your charity, in which case you probably shouldn’t be so blasé about it. In that case, you probably would want to send the money through your bank with an automated clearing house network transfer, which will generally have a much smaller processing fee, if any. Alternately, you could up your donation to cover the processing fee.
Consider donating credit card rewards
Do you have a pile of rewards sitting on your card? Feeling generous? Well, instead of taking those rewards for yourself, you could donate them to a charity.
Some credit cards have partnerships with charities, in which you’re encouraged to donate rewards to certain nonprofits. In those cases, there are probably more pros than cons to donating your rewards, and if you’re feeling generous, donating those credit card rewards is probably the right call.
For instance, Discover has partnered with the American Cancer Society, the American Society for the Prevention of Cruelty to Animals, and the American Red Cross — and a bunch more, but we don’t have the space to go from their charity partners from A to W (World Wildlife Fund). But you get the idea. They have a pretty sophisticated “donate credit card rewards to charities” operation going on.
So does American Express. They have a partnership with JustGiving.com, a global online social platform for giving, and if you have an American Express card that earns Membership Rewards points, you can donate them to more than 1.5 million (!) registered U.S. nonprofit organizations.
Those are just a couple examples. There are a lot of credit cards that have set things up, so that it’s a pretty easy process to donate credit card rewards. But you may want to reconsider giving back in this way if you’re, say, going to contact the charity yourself and offer up your credit card rewards.
“When thinking about donating the rewards themselves, any donor should be thinking about if their donation will impose a new burden on the nonprofit, and its likely already-overstretched staff,” Cohen says. “If there might be challenges for a nonprofit to be able to cash in those rewards, it’s best to donate another way. That particularly applies if those rewards add up to only a small amount.”
Cohen puts it this way: “If it takes two hours of staff time to access a donation of rewards equivalent to $25, then you have actually cost the nonprofit money instead of helping it.”
But Cohen makes clear that you shouldn’t assume anything. Maybe the charity would love your credit card rewards, even twenty-five bucks’ worth.
“It’s always best to talk to the nonprofit to see the best way to support their work,” he emphasizes. “For some, credit card rewards are great. For others, they prove more of a challenge and another method of donating may be better.”
Consider how your credit card donation will affect your taxes
Sure, we all want to give because it’s the right thing to do, but most people would arguably prefer to do the right thing and try to save a little money in the process. Whether you make your donation with a credit card or via cash, you’ll generally be eligible to claim a deduction on your federal taxes for donation provided you’re giving money to a 501(c)3 organization.
Chances are, your favorite charity is a 501(c)3 organization, but not every nonprofit is. For instance, a homeowners’ association is a nonprofit but not a charity. For years, up until 2015, the NFL was actually considered a nonprofit. But, yes, we digress.
So you credit card donation should be deductible, but if you donate your credit card rewards to a charity that is designated a 501(c)3 organization, you will not be able to take that as a tax deduction.
Why? Because the Internal Revenue Service considers a credit card reward as something of a sales discount, like if you get a really good deal at JCPenney or Target and find an $80 sweater on sale for $19. Cash rewards aren’t considered income.
But be very glad for that. If the IRS did consider credit card rewards income, then every time you earned cash back, miles or points from your credit card, you’d have to fork some of that money over to Uncle Sam.
Think bigger than donating cash on a credit card
That’s a suggestion from Daniel Colston, a certified financial planner who owns Upward Financial Planning, a financial planning firm in Roanoke, Vir.
“Consider donating appreciated securities instead of cash,” Colston says. “By donating appreciated securities that you’ve held for more than a year, you can avoid paying capital gains taxes and the charity can sell the securities tax-free, maximizing the impact of your donation. This invaluable strategy allows you to offload stocks which will eventually result in a large tax bill while resulting in the charity receiving the same amount of funds as if you’d donated cash.”
Ah, to be rich.
Credit card guidelines if you run a charity or political campaign
Of course, you may be a mere mortal who plans on making the world a better place by starting a charity or running a political campaign, and you figure you’ll bootstrap your operation with a credit card. And that’s great. Good for you! But you will want to follow some best practices when it comes to using your charity or political campaign’s credit card:
Think about the tech running your charity or campaign website
Yeah, you know you need a website. You also know that it needs to look great and really sell your cause. But you might not be thinking about making sure your online donation page is secure enough to keep cyberattacks at bay, or crooks from using stolen credit cards to make donations to your nonprofit.
“That can’t be a problem,” you might think, “How often do bad guys donate to charities? They’re bad guys. They’re using stolen credit cards to buy TVs from a department store.”
True, but crooks will often test credit cards by offering up a small donation to a charity or nonprofit’s website. Why? Because they know that a lot of smaller and new charities don’t have robust anti-fraud protection on their websites.
And if you later learn that somebody’s credit card was used to send money to you, you’ll have to pay back the money and pay the processing fee and probably end up paying a chargeback fee, which can sometimes run up to $100. And, of course, if this happens a lot, it can hurt your nonprofit’s reputation. So if your website is collecting online donations via credit card, you need to do everything you can to make sure that it’s a fairly advanced operation.
Your nonprofit should have its own credit card
Ideally, it will. But that, too, can be tricky. Many lenders are reluctant to approve credit cards for a nonprofit without the cardholder giving a personal guarantee on the account. Depending on the cardholder, that may or may not be an issue, but it’s something to be aware of.
Think about credit card rewards for your charity
You’ll want to think about applying for a credit card for your charity in the same way you would choose a credit card for yourself. Ideally, your credit card will have rewards – getting a lot of cash back could save your charity money on anything it purchases – and consider the fees. Paying a hefty annual fee may not make much sense for your charity or political campaign, unless you’re confident the rewards or other card benefits will justify it. (But then that, again, is the same logic you would use in applying for a personal credit card.)
Remember that using credit card rewards for something business/charity/political campaign- related affects the tax status of that “purchase.” Consult your tax professional to better understand the rules.
Be aware of any regulations associated with using your card
Political campaigns especially need to be on top of this.
The rules governing a political campaign can vary depending whether you’re running for a federal, state or local office, but there is a very good chance you need to pay attention to your credit card expenditures whether you’re running for Senator or dogcatcher (which isn’t really a thing any more, but it used to be an actual office that people would run for, mostly throughout the 19th century and into the mid-20th century).
Again, what the credit rules are that you need to follow will depend on what office you’re running for and where, but odds are good that any expenditure made by a credit card will need to be reported, and it may need to be itemized if it’s over a certain amount.
If you use your political campaign’s credit card to buy personal belongings, there’s also a very good chance that you’ll not only need to report it, but report it on a particular document. There also may be rules about keeping receipts of contributions that people make to your campaign with a credit card, or cash or with a check, for that matter.
Be careful about making credit card contributions if you’re broke
Final bit of advice for all the givers in the world. You’re all in about helping a good cause or a campaign that really has you jazzed. You want to do something to help. You’re a darn good person.
So you reach into your wallet and pull out your credit card, even though your inner voice is saying, “Wait, a minute, I just spent a lot in car repairs, and I’m kind of broke right now, and is this smart?”
Probably not. The last thing you want is to carry a balance over the next few months because you gave generously to a charity or a political campaign. Then you’re paying interest on a donation, which doesn’t help anyone, you or the nonprofit, since you’ll be less able to afford to do future donations. If you’re broke and want to help out, consider donating some of your time to your favorite cause or candidate, instead of money.