My question was not really about whether to tithe or not, since we believe that it is part of our obedience to G-d. It was more a logistics question. We usually give gifts for birthdays and Christmas, and part of getting new gifts has always been to give old or not used toys to charity. It never occurred to me to ask him to tithe on the value of a lego set, but recently he has gotten interested in Mindstorms, so he saves up for those purchases, which for the first time involved asking for cash in lieu of a gift. We opted not to ask for tithe on that since it was not an earning.
To the PP - G-d loves a cheerful giver, to me that is a comment on my attitude when being obedient, not a way out of giving. If you ask your child to take out the trash, and he complains, stomps, and carries on while doing it it conveys a very different message than if he says "yes ma'am" and gets up and does it. Tithes do not have to go to a church, they can go to feed the homeless, and take care of those less fortunate, which was originally a duty of the temple. FYI - most Jews tithe to charities and pay membership dues to synagogues.