Giving money to charity for tax reasons
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Ray Cassick wrote: lower your income bracket How can it work? Let's do some simple math. Let's say your bracket is 31% and you give $1000 to the charity, so you don't have to pay tax on these $1000 which results in tax savings of $310. But in the mean time you are out of $1000 cold cash. You could save more in terms of local taxes, but there is no way you can save %100. Hence lowering bracket to save money is a misleading argument. The only way I can see this work is that you donate a lot of non-cach items and grossly exagerating their values.
Ok, Let me set up a hypothetical situation here. I say hypothetical because I don’t have a set of tax tables in front of me right now. Lets assume that the tax tables go like this: 0 - 20,999 = a 20% tax rate 21,000 and up = a 30% tax rate Given the example above, if a person makes 20,000 a year, they have to pay 20% of that, or 4000 in taxes, so they end up getting only a 16,000 income after taxes. If this person gets a raise of 1000 a year, this now places them at 21,000 a year and into the 30% bracket. They are now responsible for a tax burden of 6300, leaving them with 14,700 after taxes. In this case the difference in income between brackets their brackets was 1000 but that 1000 controlled 2300 in tax increases. Once they go their raise, if they had even donated 5 dollars and lowered their income below the 30% bracket they would have made out much better. This is my basic understanding on how it works. I am by no means a tax accountant though. If I am wrong, please someone correct me.
Paul Watson wrote: "At the end of the day it is what you produce that counts, not how many doctorates you have on the wall." George Carlin wrote: "Don't sweat the petty things, and don't pet the sweaty things." Jörgen Sigvardsson wrote: If the physicists find a universal theory describing the laws of universe, I'm sure the asshole constant will be an integral part of that theory.
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Roger Wright wrote: You've got the reasoning wrong. People do not give to charity to gain a tax break; Sorry, I assumed the worst of human nature. I have seen too many people doing it for the wrong reasons.
Cheating on taxes by misrepresenting your contributions is WRONG. Making contributions for the sole purpose of getting the deduction is NOT wrong. Everyone wins.
Paul Watson wrote: "At the end of the day it is what you produce that counts, not how many doctorates you have on the wall." George Carlin wrote: "Don't sweat the petty things, and don't pet the sweaty things." Jörgen Sigvardsson wrote: If the physicists find a universal theory describing the laws of universe, I'm sure the asshole constant will be an integral part of that theory.
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Cheating on taxes by misrepresenting your contributions is WRONG. Making contributions for the sole purpose of getting the deduction is NOT wrong. Everyone wins.
Paul Watson wrote: "At the end of the day it is what you produce that counts, not how many doctorates you have on the wall." George Carlin wrote: "Don't sweat the petty things, and don't pet the sweaty things." Jörgen Sigvardsson wrote: If the physicists find a universal theory describing the laws of universe, I'm sure the asshole constant will be an integral part of that theory.
Ray Cassick wrote: Cheating on taxes by misrepresenting your contributions is WRONG. Making contributions for the sole purpose of getting the deduction is NOT wrong. Everyone wins. My point is, it is impossible to have any personal financial gain by making charitable donations, unless some kind of cheating is involved. I won't argue that you will get good feelings about yourself for helping the needy.
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Ok, Let me set up a hypothetical situation here. I say hypothetical because I don’t have a set of tax tables in front of me right now. Lets assume that the tax tables go like this: 0 - 20,999 = a 20% tax rate 21,000 and up = a 30% tax rate Given the example above, if a person makes 20,000 a year, they have to pay 20% of that, or 4000 in taxes, so they end up getting only a 16,000 income after taxes. If this person gets a raise of 1000 a year, this now places them at 21,000 a year and into the 30% bracket. They are now responsible for a tax burden of 6300, leaving them with 14,700 after taxes. In this case the difference in income between brackets their brackets was 1000 but that 1000 controlled 2300 in tax increases. Once they go their raise, if they had even donated 5 dollars and lowered their income below the 30% bracket they would have made out much better. This is my basic understanding on how it works. I am by no means a tax accountant though. If I am wrong, please someone correct me.
Paul Watson wrote: "At the end of the day it is what you produce that counts, not how many doctorates you have on the wall." George Carlin wrote: "Don't sweat the petty things, and don't pet the sweaty things." Jörgen Sigvardsson wrote: If the physicists find a universal theory describing the laws of universe, I'm sure the asshole constant will be an integral part of that theory.
Ray Cassick wrote: If this person gets a raise of 1000 a year, this now places them at 21,000 a year and into the 30% bracket. They are now responsible for a tax burden of 6300, leaving them with 14,700 after taxes. :wtf: I know the tax code is a mess, but it ain't this bad! Tax brackets are marginal. A given rate applies only to the portion of income that falls in its bracket. In your example, tax before = 20,000*0.2 = 4000.00 tax after = 20,999*0.2 + 1*0.3 = 4200.10
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Ray Cassick wrote: Cheating on taxes by misrepresenting your contributions is WRONG. Making contributions for the sole purpose of getting the deduction is NOT wrong. Everyone wins. My point is, it is impossible to have any personal financial gain by making charitable donations, unless some kind of cheating is involved. I won't argue that you will get good feelings about yourself for helping the needy.
Anonymously wrote: it is impossible to have any personal financial gain by making charitable donations, unless some kind of cheating is involved. True. Any business or individual who donates solely for the tax benefit needs a new accountant. For a business, though, there are many intangible benefits that can far exceed the value of the tax savings (or even the donation amount) by creating the perception among customers of being a good corporate citizen. People really do patronize businesses they perceive to be socially helpful. Charities can also improve donation levels by publicly recognizing their corporate donors, helping to spread the word about what great 'people' these companies are. That's a win-win situation! "Please don't put cigarette butts in the urinal. It makes them soggy and hard to light" - Sign in a Bullhead City, AZ Restroom
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I know almost everyone is doing it, but why? In theory, you can only deduct the amount you actually give away, so there is no way it will save you anything. Unless of course you plan to cheat by exagerating the amount you give. Even if you deduct a used item, you are supposed to deduct its fair market value. We all know the fair market value of a used underwear should be less than 10 cents, any amount above that is again cheating. ;) Another question is, when you give $1000 to a church, is the church required to pass all of it to the poor? Can the church use the money to advance their religion instead? If yes, then that's equivalent to government officially supports the religion because otherwise the money will be collected by the government.
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Ray Cassick wrote: If this person gets a raise of 1000 a year, this now places them at 21,000 a year and into the 30% bracket. They are now responsible for a tax burden of 6300, leaving them with 14,700 after taxes. :wtf: I know the tax code is a mess, but it ain't this bad! Tax brackets are marginal. A given rate applies only to the portion of income that falls in its bracket. In your example, tax before = 20,000*0.2 = 4000.00 tax after = 20,999*0.2 + 1*0.3 = 4200.10
yaname wrote: Tax brackets are marginal. A given rate applies only to the portion of income that falls in its bracket. Thanks. That is exactly what I am going to tell him. There may be some people who don't know the difference between the tax rate (the real percentage you pay for tax) and the marginal tax rate (the percentage you pay if you make any extra money), but most people just want to cheat (excluding those who are really doing this for the good of others, of course) by exagerating the values of their donations.
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Anonymously wrote: it is impossible to have any personal financial gain by making charitable donations, unless some kind of cheating is involved. True. Any business or individual who donates solely for the tax benefit needs a new accountant. For a business, though, there are many intangible benefits that can far exceed the value of the tax savings (or even the donation amount) by creating the perception among customers of being a good corporate citizen. People really do patronize businesses they perceive to be socially helpful. Charities can also improve donation levels by publicly recognizing their corporate donors, helping to spread the word about what great 'people' these companies are. That's a win-win situation! "Please don't put cigarette butts in the urinal. It makes them soggy and hard to light" - Sign in a Bullhead City, AZ Restroom
Roger Wright wrote: That's a win-win situation! Let's not be too naive about this. A lot of charities are used by evil people for their own personal gains and even for money laundrying. If you don't trust the government for doing the right thing, you should also watch out for those private organizations (they can be equally bad).
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Roger Wright wrote: That's a win-win situation! Let's not be too naive about this. A lot of charities are used by evil people for their own personal gains and even for money laundrying. If you don't trust the government for doing the right thing, you should also watch out for those private organizations (they can be equally bad).
Anonymously wrote: A lot of charities are used by evil people for their own personal gains and even for money laundrying. Bull. There are a few, but very few, and this is a field in which I am well informed. The vast majority of charitable organizations are legitimate. I know of a few that have had accounting problems due to the fact that they are all run mostly by volunteers, but none personally known to me are criminally involved with anything not above board. Very little research is needed to identify fake organizations, and it's a practical no-brainer to find a worthwhile charity that provides a service you can feel good about supporting. An IRS 501c3 status letter is a requirement for deductibility, and all form 990/990EZ filings are public documents - both must be provided online or upon request if you are unsure of the status of the organization. All must be registered with the states in which they do business - refer to your Secretary of State Commercial Filings office, where you'll find a ist of the Directors and Officers of the organization, along with the Charter or Articles of Incorporation and Bylaws. Those that have significant income (>$100,000/ year, last time I looked) must also have an independent audit of their finances each year. A fear of supporting an organization that is involved in shady or illegal activities is a fake excuse for not donating - it just doesn't hold water. "Please don't put cigarette butts in the urinal. It makes them soggy and hard to light" - Sign in a Bullhead City, AZ Restroom
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yaname wrote: Tax brackets are marginal. A given rate applies only to the portion of income that falls in its bracket. Thanks. That is exactly what I am going to tell him. There may be some people who don't know the difference between the tax rate (the real percentage you pay for tax) and the marginal tax rate (the percentage you pay if you make any extra money), but most people just want to cheat (excluding those who are really doing this for the good of others, of course) by exagerating the values of their donations.
Anonymously wrote: most people just want to cheat... by exagerating the values of their donations. I'm curious about what basis in fact you have for this statement. I spent the first four months of this year doing taxes for hundreds of other people and, if they claimed anything, they all understated their contributions. Not one of them overvalued their claims, and I had to dig and encourage them to claim all that they really were entitled to claim. Even so, most were entitled to more than they finally claimed. "Please don't put cigarette butts in the urinal. It makes them soggy and hard to light" - Sign in a Bullhead City, AZ Restroom
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You've got the reasoning wrong. People do not give to charity to gain a tax break; they give because they want to support the works of a particular group, most of which rely entirely on gifts for income. The government recognizes and encourages private giving by not counting that portion of income donated to charity as taxable income. This is not just because the government recognizes that these agencies contribute to the well-being of society, but also because in many cases these agencies are providing services that the government would otherwise be expected to provide. Any such program would be far more wasteful than a charity run mostly by volunteers, so money given to a charity has more bang for the buck than money given to a government to accomplish the same purpose. Churches are a special case; they are not taxed because that might interfere with their operation, and the government is specifically prohibited from hassling religious organizations. Many churches also do good works, apart from trying to convert people to their beliefs. One church here in my town provides food for 300+ people every week, food that these people would otherwise lack, or have to call upon the government to provide at taxpayers' expense. If they want to spend a bit of my donations to keep the church looking nice, or to print their Sunday program, I don't begrudge them that even though I don't subscribe to their religion. "Please don't put cigarette butts in the urinal. It makes them soggy and hard to light" - Sign in a Bullhead City, AZ Restroom
Personally I think Churches should be taxed like any other business venture, however if the Church runs a charity as well that should be a separate enterprise that can be registered as a charity. By Governments not taxing Churches or in effect religeous establishments they are in effect supporting them which is another method of interfering in their operations. Regardz Colin J Davies
Sonork ID 100.9197:Colin
Warning Link to the minion's animation, do not use. It's a real shame that people as stupid as you can work out how to use a computer. said by Christian Graus in the Soapbox
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Anonymously wrote: A lot of charities are used by evil people for their own personal gains and even for money laundrying. Bull. There are a few, but very few, and this is a field in which I am well informed. The vast majority of charitable organizations are legitimate. I know of a few that have had accounting problems due to the fact that they are all run mostly by volunteers, but none personally known to me are criminally involved with anything not above board. Very little research is needed to identify fake organizations, and it's a practical no-brainer to find a worthwhile charity that provides a service you can feel good about supporting. An IRS 501c3 status letter is a requirement for deductibility, and all form 990/990EZ filings are public documents - both must be provided online or upon request if you are unsure of the status of the organization. All must be registered with the states in which they do business - refer to your Secretary of State Commercial Filings office, where you'll find a ist of the Directors and Officers of the organization, along with the Charter or Articles of Incorporation and Bylaws. Those that have significant income (>$100,000/ year, last time I looked) must also have an independent audit of their finances each year. A fear of supporting an organization that is involved in shady or illegal activities is a fake excuse for not donating - it just doesn't hold water. "Please don't put cigarette butts in the urinal. It makes them soggy and hard to light" - Sign in a Bullhead City, AZ Restroom
"The vast majority of charitable organizations are legitimate" How do you know this? Just because they all have to right papers doesn't mean they are good. In this country, you are not guilty until you get caught (on vedio tape). "A fear of supporting an organization that is involved in shady or illegal activities is a fake excuse for not donating" It is not a fake excuse. Didn't someone from intel got arrested for donating to a muslim temple?
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Anonymously wrote: most people just want to cheat... by exagerating the values of their donations. I'm curious about what basis in fact you have for this statement. I spent the first four months of this year doing taxes for hundreds of other people and, if they claimed anything, they all understated their contributions. Not one of them overvalued their claims, and I had to dig and encourage them to claim all that they really were entitled to claim. Even so, most were entitled to more than they finally claimed. "Please don't put cigarette butts in the urinal. It makes them soggy and hard to light" - Sign in a Bullhead City, AZ Restroom
"Not one of them overvalued their claims, and I had to dig and encourage them to claim all that they really were entitled to claim." It really depends on what value you are talking about. For example, an old car may worth $1500 according to the blue book, but there is no way it can be sold for more than $200 because the whole brake system needs to be replaced in order to drive it. However, replacing the brake system will cost more than $1300. If this car was donated and counted as $1000 deduction, you may think it was undervalued but in fact it was overvalued (cheating).
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Personally I think Churches should be taxed like any other business venture, however if the Church runs a charity as well that should be a separate enterprise that can be registered as a charity. By Governments not taxing Churches or in effect religeous establishments they are in effect supporting them which is another method of interfering in their operations. Regardz Colin J Davies
Sonork ID 100.9197:Colin
Warning Link to the minion's animation, do not use. It's a real shame that people as stupid as you can work out how to use a computer. said by Christian Graus in the Soapbox
Colin Davies wrote: Personally I think Churches should be taxed like any other business venture We obviously have a different opinion here but I can state that they are taxed just like any other business venture (at least hear in the states.) Any church that runs a profit operation is taxed. Those that run schools, day care, etc. Mine rented the kitchen to a food service organization and that income was a taxed business income. Colin Davies wrote: however if the Church runs a charity as well that should be a separate enterprise that can be registered as a charity. With very few exceptions (yes there are a few :(( ) churches do run a charity operation. At a minimum free counciling and some help for the needy is provided by them. Now to be a charity operation it is amazing how little actually has to go to the intended reciepient. It is only a few percent. So even though it is poor practice if you made the rules stringent enough to remove churches (the value of say 25% of the pastors time) you would remove 50% (my wild guess, no fact) of all charities. "For as long as I can remember, I have had memories. Colin Mochrie."
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Personally I think Churches should be taxed like any other business venture, however if the Church runs a charity as well that should be a separate enterprise that can be registered as a charity. By Governments not taxing Churches or in effect religeous establishments they are in effect supporting them which is another method of interfering in their operations. Regardz Colin J Davies
Sonork ID 100.9197:Colin
Warning Link to the minion's animation, do not use. It's a real shame that people as stupid as you can work out how to use a computer. said by Christian Graus in the Soapbox
Colin Davies wrote: Personally I think Churches should be taxed like any other business venture, however if the Church runs a charity as well that should be a separate enterprise that can be registered as a charity. By Governments not taxing Churches or in effect religeous establishments they are in effect supporting them which is another method of interfering in their operations. There are two issues: whether churches should be taxed on their income and whether donations to them should be tax deductible to the donor. In Australia, churches are not taxed on their income ("operating surplus"). This is the same as for other non-profit community organisations. Church employees, however, must pay income tax. Donations to the church are not tax deductible in general. For example, donations used to buy bibles or provide an income to ministers of religion are not tax deductible. The only way for donations to a church to be tax deductible is the way you propose: churches must set up a registered charity with a welfare purpose (shelters for homeless people, for example). Some incidental religion is tolerated in these charities, but the charity cannot have a direct religious purpose. John Carson
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Colin Davies wrote: Personally I think Churches should be taxed like any other business venture, however if the Church runs a charity as well that should be a separate enterprise that can be registered as a charity. By Governments not taxing Churches or in effect religeous establishments they are in effect supporting them which is another method of interfering in their operations. There are two issues: whether churches should be taxed on their income and whether donations to them should be tax deductible to the donor. In Australia, churches are not taxed on their income ("operating surplus"). This is the same as for other non-profit community organisations. Church employees, however, must pay income tax. Donations to the church are not tax deductible in general. For example, donations used to buy bibles or provide an income to ministers of religion are not tax deductible. The only way for donations to a church to be tax deductible is the way you propose: churches must set up a registered charity with a welfare purpose (shelters for homeless people, for example). Some incidental religion is tolerated in these charities, but the charity cannot have a direct religious purpose. John Carson
Yeah their are a lot of issues and annomalies. I'm currently enrolled in a business course with an ordained minister. he clearly admits he should be running his parish in a more business fashion as well. IMHO: Real charaties shouldn't be taxed on doantions received or income from investments, otherwise it would be similar to them having to pay tax on the voluneers work. Regardz Colin J Davies
Sonork ID 100.9197:Colin
Warning Link to the minion's animation, do not use. It's a real shame that people as stupid as you can work out how to use a computer. said by Christian Graus in the Soapbox
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Roger Wright wrote: You've got the reasoning wrong. People do not give to charity to gain a tax break; Sorry, I assumed the worst of human nature. I have seen too many people doing it for the wrong reasons.
I don't suppose the charities concerned particularly care about the motivation behind the donation. I would also disagree that "everyone" is donating to charity for tax reasons. Sure there may be some high earners whose accountants may recommend it: I wouldn't know as I don't fit into that bracket, but then neither so the vast majority of people who donate to charity, in terms of head count, rather than amount donated. In the UK there is a thing called Gift Aid, whereby even relatively small donations to charity can have the basic rate of tax claimed back by the charity (as long as you sign something to confirm that you are a basic rate tax payer). I recently visited the Eden Project in Cornwall, and they had this scheme (as I recall) whereby you joined as a day member and then they could claim this tax relief back on your day ticket price. I expect it makes a big difference to a charity when it all gets added together. Debbie
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I know almost everyone is doing it, but why? In theory, you can only deduct the amount you actually give away, so there is no way it will save you anything. Unless of course you plan to cheat by exagerating the amount you give. Even if you deduct a used item, you are supposed to deduct its fair market value. We all know the fair market value of a used underwear should be less than 10 cents, any amount above that is again cheating. ;) Another question is, when you give $1000 to a church, is the church required to pass all of it to the poor? Can the church use the money to advance their religion instead? If yes, then that's equivalent to government officially supports the religion because otherwise the money will be collected by the government.
In the UK charities have to submit their account to the charities comission, a government body to check that moeny is being spent resaonably. Elaine :rose: The tigress is here :-D
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I know almost everyone is doing it, but why? In theory, you can only deduct the amount you actually give away, so there is no way it will save you anything. Unless of course you plan to cheat by exagerating the amount you give. Even if you deduct a used item, you are supposed to deduct its fair market value. We all know the fair market value of a used underwear should be less than 10 cents, any amount above that is again cheating. ;) Another question is, when you give $1000 to a church, is the church required to pass all of it to the poor? Can the church use the money to advance their religion instead? If yes, then that's equivalent to government officially supports the religion because otherwise the money will be collected by the government.
Anonymously wrote: I know almost everyone is doing it, but why? Why is everyone doing it ? Because I claim any charitable donation I make, does that mean I made the donation solely to dodge tax ? Hell, I can dodge tax by buying computers. Anonymously wrote: Another question is, when you give $1000 to a church, is the church required to pass all of it to the poor? Can you claim money you give to a church in the USA ? The principle of giving money to the church is not that they give it to the poor, that's not the churches job. The idea is that the money is used to pay for the facilities the church provides. Christian I have drunk the cool-aid and found it wan and bitter. - Chris Maunder