I tried on my tuxedo this morning, and fortunately, it still fits because I need to use it tonight.  I’m not typically a fancy dresser – the thought of spending my life in a suit and tie has always made me cringe.  I only half-joke that I chose Emergency Medicine so that I could wear pajamas to work.  I’m writing this in cargo shorts and a T-shirt, my standard non-work uniform.  However, a couple of times a year, I pull out the tux and spend half an hour struggling with the bowtie in order to attend a charity auction.  

The Charity Auction

     Tonight is the Austin Humane Society’s annual Charity Gala.  I’m not exactly an animal guy, but I have several friends that are.  Specifically, one of my business partners and his wife are very involved with AHS.  They were the chairs of last year’s 17th annual event.  I have attended the last few years as their guest, donating money mainly to be polite.  Last year, though, I purchased a vacation package during the live auction despite losing the bidding . . . I’ll have to explain later.  Despite my wife’s protestations, whether it was the booze or the excitement of an auction, I purchased a trip to the Belt Creek Ranch in Montana.  

     My family usually vacations at the beach.  My wife spent her high school years on an island in Brazil, while I grew up in the landlocked Midwest . . . I guess you can see who wins the arguments in our house.  Some friends had gone to Montana the previous summer and told us how great it was.  We had been discussing something similar, so I was very interested when an all-inclusive trip to the Ranch came up. 

My wife astutely pointed out that it was only for two people, but I assumed we could figure something out.  My wife and I have no close family in the U.S., so we don’t leave our kids when we go on vacation.  We have an au pair, but leaving our kids with her would violate the Department of State rules.  If you are considering an au pair, read about our experience here.  Despite my wife’s concerns, I decided to start bidding. 

     If you’ve ever been to an auction, it’s easy to get caught up.  Bids are flying.  The auctioneer is spitting out words like a patient on meth.  You’re trying to do math in your head after a few glasses of wine while your friends are egging you on.  It’s all a bit overwhelming.  Just before the Montana vacation package, there was a trip for two to Andrea Bocelli’s villa in Italy for a private dinner and concert.  I thought it sounded amazing, but it wasn’t very realistic with three kids.  My partner ended up buying it for his sister as a wedding present.  When someone at your table wins, it only adds to the excitement as you garner attention from the whole room.

charity auction

     The next item was the Montana package.  Bidding started at $5,000 and quickly went up to $15,000.  Despite my wife actively trying to hold my right arm down, I deftly transitioned the paddle to my left and let a $16,000 bid fly.  Going once, going twice, sold to someone else at $17,000.  My wife sighed in relief and chastised me for my last bid.  I was simultaneously disappointed and a little relieved.  While our table was still buzzing with energy, the auctioneer was having a huddle on the stage with some of the organizers. 

They got the audience’s attention with a special announcement.  The family that donated the Belt Creek trip had decided to add an additional trip if the second-place bidder would still buy it.  Suddenly, the entire audience was expectantly looking at me.  I felt like I had no other choice but to say yes.  So, that is how I lost the bidding but still purchased a vacation package.  Somehow, they only charged my credit card $15,000 for the trip.  I don’t know what happened, as I only saw the receipt months later when I was organizing our taxes, but that should show you how chaotic it all was or how many glasses of wine I had consumed.    

     Since our friends were chairing the event, my wife bid on every item in the online silent auction before the gala.  She was trying to raise the prices and assumed she would be outbid on all the items.  Unfortunately, many people seemed to forget about the silent auction.  My wife won several items on the list – jewelry she didn’t want, dinner for 8, tickets to a production of Sweeney Todd (ok, that one was pretty cool), coding classes for our children, and a complete drum kit that now lives in our non-soundproof garage.  Her gaff softened the blowback from my purchase since we both learned a valuable lesson about auctions.  

donations

The Trip     

     The Ranch trip was five days / four nights for two adults.  Meals and a daily Ranch activity were included.  Flights were not.  There were blackout dates that coincided with my wife’s preferred late-summer timeframe, but she called the Ranch and was fortunately able to book for those days anyway.  She was also able to add our three children to the reservation for $450 per night . . . each!  That adds another $5,400 if you’re keeping track at home.  To make the trip a little longer and get better value for the flights, we booked an Air BNB in Whitefish for another five nights and arranged to meet some friends there.  We would tour Glacier National Park and spend time with friends before driving to the Ranch.  The cost breakdown for expenses directly related to the Ranch trip are below.

     We had a wonderful time on the vacation.  Glacier was incredible, and spending time with friends is always fun.  The Ranch itself was a completely new experience for us.  We stayed in a log cabin, rode horses, performed archery, rode ATVs, made native art, went on hikes, and generally had a blast.  The food was excellent but only consisted of breakfast and dinner.  Lunch was soup and snacks since most guests were out doing activities. 

My older children don’t eat “kid food” anymore, which usually consists of chicken nuggets, cheese quesadillas, or spaghetti, so they typically order from the adult menu when we dine out.  The facility gave us a bit of a hassle about this, but they eventually gave in.  For $450 a day, I felt they could spare a piece of fish or a burger.  The trip was memorable for our family.  My oldest son enjoyed the archery lesson so much that he asked for a compound bow for his birthday.

montana trip from charity auctions

My Charity Concerns

     I participated in a medical mission trip to Uganda early in my career.  I’m not religious, but I always want to help people in need.  It was an unforgettable experience, but when I returned, I couldn’t help having doubts about how much I actually helped anyone.  I’m not a surgeon, so I wasn’t permanently repairing a hernia or removing a large fibroid tumor.  I was handing out Motrin to people with chronic neck pain and deworming children who would need another dose in a few months.  ER skills translate poorly to these types of missions.

I received a tremendous amount from the trip – perspective, humility, and a renewed desire to help people.  However, I couldn’t shake the feeling that with the exception of the surgical crew, the Americans on the trip received more than the Ugandans.  The trip cost $4,500 per person, which I believe would have been better spent locally – digging freshwater wells, building sustainable tilapia farms, or training local doctors and nurses.  Don’t get me wrong, I know that everyone’s heart is in the right place on these types of trips, but from a purely economic standpoint, there are better uses for the money.  In response, our ER group set up a scholarship program that paid for two Ugandan students to attend medical school for four years in exchange for working at the village hospital when they graduated.  I generally try to put what I learn into action.  

     After the charity auction trip, I had the same concerns.  I had a nagging feeling that the Ranch trip may have been more about me than the charity, so I decided to look at the economics of this type of charitable giving. 

Price Paid to AHS Auction $15,000
Additional Price for 3 Children $5,400
Flights for Five$3,000
Rental Car$500
Tips$400
Total Cost to Me$24,300

Taxes: Comparing Cash Donations, Stock Sales and DAFs

     When you purchase something at a charity auction, you can only deduct the item’s fair market value (FMV).  The FMV for the Ranch trip was $8,900, so I could only deduct $6,100.  Unless your itemized deductions are above the standard deduction threshold of $25,900, you can’t deduct it anyway.  If you want to learn more about the myth of the tax write-off, click here.  My itemized deductions for 2022 were above this threshold, so I was able to claim the trip on my taxes.  

2022 Breakdown

Charity The Trip’s Donor Me
Received $15,000 $8,900 in tax deductions ($3,393 net, assuming a 37% marginal rate)$24,300 Total Cost
Minus any Gala-related expensesMinus Any Lost Rental Revenue$2,257 Tax Savings (37% rate)
$22,043 Net Cost
Received a Nice Vacation

 A Better Way to Give?

Charity Auctions vs. Direct Donations

    Would it have been more beneficial if I had just donated money to AHS and not purchased the trip?  My total out-of-pocket cost was $22,043 ($24,300 – $2,257).  The following scenarios only concern my contribution and not the donor of the trip.  

Scenario 1:  Donate $15,000 Cash

     I could donate $15,000 cash and receive a tax write-off of $5,550 for a total out-of-pocket cost of $9,450.  

Scenario 2:  Donate $24,300 Cash

       I could donate $24,300 cash and receive a deduction of 8,991 for a total cost of $15,309.  

Scenario 3:  Sell Stock to Donate $15,000 Cash:

     I could sell stock to donate to charity.  I currently have Apple (AAPL) shares with a cost basis of $20.79 with a market price of $191.30.  My capital gains rate is 20%, so if I wanted to raise $15,000 to give to charity, I would have to sell $18,254 worth of stock. 

AAPL Sale Calculations

Donation breakdown

Scenario 4:  Donate Stock to DAF:

     I could donate appreciated shares of stock into a Donor Advised Fund (DAF) and receive a tax deduction for the full amount of the donation while saving capital gains tax on the appreciated amount.  

  DAF Calculations

DAF contributions

Scenario 5:  Sell Stock Worth $24,300 and Donate Proceeds

     I could sell $24,300 worth of AAPL shares, which would net the charity $19,968 and cost me $16,912.  

AAPL Sale Calculations

donation breakdown

Scenario 6:  Donate $24,300 Worth of Stock to DAF

     I could donate $24,300 worth of AAPL shares to a DAF and then to the charity.  

  DAF Calculations

DAF contributions

Results

     So, those are the numbers for charity auction purchases versus donating money directly versus using a DAF as an intermediary.  Everyone likes to get dressed up and feel important occasionally, so I guess these galas have their place.  I will admit that winning something at a live auction feels good.  However, that may have more to do with ego than economics.  Directly donating money is more tax-efficient for the donor and can result in a larger amount for the charity.  Donating cash would make more sense than selling shares to raise the money, however, the most tax-efficient avenue for me would be to open a DAF and donate appreciated shares.  Apple is my most appreciated holding, so the numbers would not look as good if I donated other shares, but it would still be better than donating the cash directly.  

2023 Gala 

     Armed with my newfound knowledge, I made my way to the 2023 gala in my tuxedo.  My wife could not attend this year but advised me not to purchase anything in the auction and just donate money directly.  Obviously, I didn’t have time to open a DAF, but I vowed to do it before the 2024 event.  I had every intention of listening to my wife.. until I accidentally won her some jewelry in the live auction.  I guess I’m a slow learner, but the charity wins either way.