I understand you get tax breaks for charity. But your still giving money away. So how do you end up with more money by donating to charity?
I understand you get tax breaks for charity. But your still giving money away. So how do you end up with more money by donating to charity?
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Did anyone say the charity wasn’t the rich person’s?
You don’t. You save on taxes, which is always less than the money you gave away.
You do. You can reduce your taxable income, but since taxes are just a percent of that income, you don’t come out ahead. That’s not to say the trade off is bad though.
The “charity” has to be one that you start. And you hire your wife to work there. And the charity has a private jet you can “borrow”.
Or what you are donating doesn’t have the value you says it has. You donate your boat/car to charity and the tax receipt is for more than the actual value.
If you give money to a legitimate charity, there is no way to come out ahead.
Doesn”t save money, saves tax payable. The donation amount comes off taxable income.
It’s a tax break for the company. Whereas instead of rounding up the cost or giving a dollar at the store, you can just directly donate to the charity and (if you give enough) get that tax break yourself.
You don’t ever save money by donating to charity.
Let’s say you get taxed 10% of your income, which was $100. You’d owe $10 in taxes.
Now let’s say you donate $10 which is tax deductible. The government allows you to deduct what you gave from your pay. So in the government’s eyes you only made $90 ($100 income – $10 to charity) so your new taxes are $9. You saved $1 by giving away $10, and have $9 less than before.
Donating money to charity does not produce a net savings after taxes. You’re essentially trading a dollar for a quarter.
The exception is if the person is donating to their own charity, and is then basically embezzling those funds from the charity.
Its tax deductible, and can drop brackets depending on how much. Better to give away 15% of your worth than be taxed 20%
It doesn’t. It isn’t a financially motivated decision. You can get all conspiratorial about it and try to find instances where someone was in cahoots with the charity and embezzling the money back to themselves, but those are exceptions and generally not very successful in countries with a robust legal system and a non-corrupts revenue department. However, that may be a more viable option in 3rd world countries where corruption is rampant.
Still, if you see “X donated Y dollars to Z charity”, the amount of money X saves is only the taxes they would have owed on the Y dollars. Essentially it is a method most governments use to not punish charitable donations with taxes and to encourage charitable giving in general. Like anything, you can illegally try to use this system to avoid taxes, but most governments don’t love to be defrauded of taxes and assuming they aren’t morbidly corrupt, are pretty persistent in making sure tax laws are followed.
One thing many people who have already commented have missed is that rich people can often change their tax bracket by donating. I don’t know the specifics, because I’m not “rich”, but at the investment seminar my wife forced me to go to, they talked about “donate X, your tax bracket goes down to A from where it was at B without a donation” and that “saves” you money, too.
You don’t save money by donating. You are looking at it backwards. If you donate to a charity, it can reduce your tax bill by a relatively small amount. It’s an incentive for people to donate money, not a way to save money on taxes. At “normal person scale”, it’s just a little mini tax break as a thanks for helping your community.
There are people that do things like start a foundation or business and run all of their expenses through that foundation or business as a way to pay themselves less. Instead of paying yourself a million a year and paying like 300k+ in taxes, you pay yourself like 100k, pay the small tax bill on that and use that as “walkin around money”, then your business or foundation provides everything else for you such as housing, company vehicle, company travel, etc… The business then writes these expenses off their taxes which can come out to a lot less than personal income tax, especially if the business loses money that year. Its all a shell game and businesses arent allowed to lose money every year. It’s really only worth that effort if you are mega rich.
It’s not intended but can sometimes be (ab)used to save money when what you are donating can be “appraised” at a value higher than what you could sell it for, in a way that you think is unlikely to get you into legal trouble
For example; at an estate sale you obtain a large collection of similar art works. You take one, put it in a fancy gallery with a big price tag and a good salesperson, sell it, thereby “establishing” a high value for the art. Then you donate the remaining artworks, and write off the value as if every single artwork was worth the high value. In reality, while you could find a buyer at that price for one of the artworks, you (probably) couldn’t find buyers for all the works at that price, so have you inflated the value of what you donated? And if you did, is there evidence more compelling than the evidence you have (a receipt from a buyer) proving your price is accurate?
Edge cases like that where something you have is of less value to you than the fraction of its value that it could save you as a tax writeoff.
You can claim a tax credit for charitable contributions to approved organizations. So $100 to an accredited charity means a discount on your taxable income of $100. In the case of $100, you pay slightly less income tax on your total annual taxable income. (You should have receipts and report that cost in your annual tax filing.)
There might be a small tax savings on that $100 — that $100 might cost you $99.98 after taxes, or whatever, because of that credit. It’s a negligible incentive in small numbers.
BUT… charitable foundations and non-profits created and fed by the ultra-rich is a completely different matter –> https://www.propublica.org/article/how-private-nonprofits-ultrawealthy-tax-deductions-museums-foundation-art
The tax break for giving money is an incentive, like others have mentioned. Many well off people love the idea that they can make a difference with their money. Even better that their money is doing something that they believe in.
In kind gifts, like donating your own time and professional expertise, can actually offset your tax burden. For instance, the snow removal service that does my church’s lot does the work for free. The church fills out a form that acknowledges that they received professional services which would normally cost $500/month and the service gets to deduct that amount, even though no money changes hands. Since the small business owner’s tax burden is almost 50%, they ‘save money’
Generally you don’t, if you do you are usually committing fraud. If you have enough money you can usually do it though. It comes into the appraised value of items, generally not actual cash donations.
You end up donating things at a value greater than you bought it. The easiest way to picture this is artwork. You can buy a piece or a set of pieces for $10,000 plant stories in the right areas about this new artist of the piece you just bought. You have friends in the art world, you get the person a show at an art gallery, so you get it appraised for much more like $500,000 you bought it for and donate to a museum for the appraised value at time of donation. The art market is subjective with prices almost always in flux, it is almost impossible to prove the piece was artificially increased in price.
Cash donations just help the tax bill do down a little bit but it is generally never going to actually save you any money, it would be a loser since it reduces your taxable income not your taxes due. $100 donation might get you $35 less in tax. You can’t donate all your income and not pay tax, at best you can reduce your income for the year 50%, anything more is carried forward to future years. In a rather rare occasion if you have expected high income one year and low income the next year in repeat, you can donate in your low income years to get tax advantage of your donations in your higher income years. Low income years would have been taxed at 10% in the high income year that donation helps reduce income that might be taxed at 35% and the difference between the the potential tax bills can be regarded as savings.
The money is spent the same. You can either give $100,000 to the government, or give $100,000 to a charity of your choosing. Sometimes there’s a kickback. Like charity auctions where you receive an item. Often these come w/ other favors or such which most people see as better than just paying taxes. Imagine you normally give the government $10,000 dollars in taxes. Instead you and a bunch of your friends give that money to a local dog shelter and they throw a “donation” party where you get to meet dogs, eat fancy food, and free booze. Yeah paying $10,000 for that party is too much, but the IRS doesn’t throw you a party.
There’s a lot of loose accounting going on w/ this, and the IRS really has no way of tracking it. Typically this is done w/ fair market value which is an estimated price of an itm. Let’s say you donate a rare baseball mitt to charity. You write off a fair market value of $800 from a similar auction. The winning bid for the mitt is $300 and that person gets a fair market value estimate of $50 which is the price of a baseball mitt so he writes off $250.