Donations on Credit

Posted by: Michael S. | Dec 28,2007


Did you know this?  Donations to charity made on a credit card are deductible for the year of 2007, even if you end up paying off that bill in 2008.  Indeed, if you’re adding to a credit card bill with a fairly high balance, it’s conceivable that you could be paying off charges made on the card today several years down the line, let alone the following year.  

Because of this, does it make sense to make donations using a credit card.  On the one hand, it has a similar issue to using credit for Christmas gifts: the balance on that gift and the interest might not be clear until the next Christmas rolls around, if then.  The difference with donations is that they are deductible so you are saving money in this way.  What you have to consider, though, is that because a charitable gift is deductible, you are going to save money, as opposed to the payment on a gift that you will not get back.  

However, don’t think that a charitable gift is free.  If you reside in the 33% tax bracket, for example, a $100 donation will only cost you $67.  That’s nice, but it still is a $33 difference.  This is not to mention that you will need to pay interest on the original $100 donation.  A credit card doesn’t differentiate between types of purchases.  So unless you put your tax refund immediately back into your credit card bill, you’re still going to lose money to interest – especially considering that it will be several months into the year before your refund is finally calculated.  In that time, interest has built up.  

This is in no way to suggest that you shouldn’t donate via credit card.  Many, many charities take credit cards and it is a better bet than an everyday purchase because you will get money back.  But I’d recommend using debit or check – two ways that have a printed record, as opposed to a cash donation, and both do not acquire interest in the following year.

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