Borrow Debt

Should You Tithe When You’re in Debt?

Rachel Cautero  |  August 29, 2018

We break down the major factors to weigh when considering how much to tithe or charitably give — if at all — while in debt.

Deciding whether to tithe or charitably give — and how much — is a deeply personal or moral choice and one that depends on varying factors.

“This is a highly personal and emotional decision involving an individual’s personal preferences, values and religious beliefs,” says Jane DeLashmutt O’Mara, a certified financial planner and portfolio manager with FBB Capital Partners. “While some may argue that it is a moral obligation to repay his or her debtors, others may feel they have an obligation to give to their church or to a person in need. The most important thing is to create a budget for yourself so that you are not surprised by the consequences of your choices.”

We break down the major factors to weigh when considering how much to tithe or charitably give — if at all — while in debt.

Tax Deductions

One of the major benefits of charitable giving or tithing, apart from the good karma, of course, are the tax benefits. More good news? According to the IRS, there is no difference between donations to charity or a tithe to a religious organization in terms of tax benefits.

“There’s no difference in tax treatment between donations to a charity or a tithe to a religious organization, assuming both are considered “qualified organizations” by the IRS,” says Liz Davidson, founder and CEO of Financial Finesse.

“Cash contributions are fully deductible, up to 50 percent of your adjusted gross income (AGI). The amount you can deduct may be different for property, depending on the type of [donated] property,” she continues.

In order to reap the greatest possible tax benefit, your total itemized deductions, such as property taxes, mortgage interest and charitable donations, should be higher than the standard deduction ($12,000 for a single filer and $24,000 for married filing jointly in 2018), Davidson explains.

The IRS Publication 526 has more complete guidelines on charitable giving.

How Much Should I Give?

“By definition, a tithe (is) a payment representing one-tenth of one’s earnings, although the amount that someone chooses to ultimately give to the church or other charitable organizations should be determined, in part, based upon the amount of discretionary income available to make such contributions,” DeLashmutt O’Mara says.

For example, if your expenses already represent 90 percent or more of your monthly income, 10 percent might not be a realistic giving goal, she explains.

Brandon Bennett, a certified financial planner, advisor and principal at RhineVest Advisors LLC in Cincinnati, Ohio says that if you truly want to charitably give, you can make it work regardless of your financial health. He suggests creating a “reverse budget” in which you prioritize paying yourself first and making charitable contributions, then allotting the remaining toward your discretionary and nondiscretionary spending.

“It’s a very personal choice, but it’s important to prioritize your goals based not only on the correct financial decision but also your own morals and beliefs,” he notes.

But he recognizes that the issue is complicated.

“This isn’t a financial decision — it’s a moral one,” he says. “If you’re paying someone else to borrow money, clearly it’s not going to be in your best financial interest to give it away. However, if tithing or giving charitably is a core part of your ethos and morals, then you need to find a way to prioritize your goals and budget to make it work.”

Davidson points to this possible solution: Base the amount you are able to give on your current situation, then increase the amount as your financial situation improves.

“There is no ‘one size fits all’ rule for how much to give or tithe,” she says. She suggests those new to giving start by setting aside 1 to 2 percent of their income for giving, then increase that percentage each year until the goal is met. Another way to start is by simply giving a dollar amount.

But giving should only be done when you are in a financial position to do so, Davidson stresses.

“Whichever way you choose, you’ve got to make sure your own financial oxygen mask is on securely before you implement an aggressive giving strategy,” Davidson notes. “Make sure that your giving doesn’t upend your financial goals, such as building a strong emergency fund, having adequate insurance, and contributing at least enough to your retirement accounts to earn your employer match.”

Attack Debt While Giving

It is possible to pay down debt while giving. You just have to smart small.

Give a smaller percentage until your debt is paid off, or even just give your time, then increase the percentage of your gifts later, Davidson suggests.

“If you are in the middle of tackling debt but want to give or tithe, recognize that you might not be able to give as high a percentage of your income as you may like, or you may only be able to give your time,” she says. “That’s OK. It’s most important to first pay your obligations. After that, a small amount – if you can – helps you feel like you are connected to the wider world and recognize that as big as our problems are, we can help others.”

Sticking to a budget will also help reach your giving goals.

“Create a budget, and stick to it. Then revisit your budget at least annually (or when changes occur in your income or spending habits), and make adjustments to your budget. Working with a certified financial planner professional will help you determine ways to improve your budget,” DeLashmutt O’Mara says.

Bennett says that it is possible to pay off debt and give simultaneously.

“This is all about order or importance. If you really want to attack debt and give, you can do both,” he says. “Sacrifice budgets in other areas like discretionary spending. When tackling debt, prioritize high-interest debt first. As lower balances are paid off, shift the monthly payment you were making towards the paid off account to another debt.”

Other Options

If the numbers simply don’t add up for you to achieve your tithing or giving goals, there is another answer.

“Volunteer!” Bennett says.

Davidson agrees.

“Give your time and your effort instead of money. Volunteer to help out the organization of your choice,” she says. “ You can even deduct the expenses you incur providing services (but not your time or the value of the service). That’s a wonderful way to do well by doing good.”

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