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How does the tax break work? Don't you still have to pay income and/or capital gains tax on everything that goes into the fund minus a pretty small amount?

stanleydrew 4y ago
I don't have experience donating to a charity that I created, so rules may be different, but in general no you don't pay any tax on donated in-kind securities and the amount of the deduction you take is generally the market value of the securities on the day they were transferred.
brookst 4y ago
Let’s say I make $100 at an effective income tax rate of 35%. I pay $35 in taxes and keep $65. Now say I make the same $100 but I give $20 to a qualifying nonprofit. I have $80 left, on which I pay 35% ($28), leaving me with $52. I have $13 less than I would have without the contribution. But if I own the nonprofit, funds under my control go from $65 to $72.
- s1artibartfast 4y ago
  The important distinction is that you cant spend those non-profit funds the same way you could cash in your pocket. It is under your control, but you can't use it to buy a Hawaiian island vacation home.
  - yardie 4y ago
    You can absolutely borrow money from the charity. I worked at a non-profit and high-value donors would donate without actually needing to send money. It was all paperwork. The charity only really was paid when the donor died.
  - brookst 4y ago
    Well, sort of. I can use it to buy a Hawaiian compound and retreat that my nonprofit will use, and it might have living space and my taste in art on the walls, and the people invited for conferences might be my friends. At that point it comes down to regulators’ appetite and ability to enforce, and of course the worst cast is some fines. As long as the EV of fines for inappropriate spending that is caught is less than the tax savings from both caught and uncaught abuses, I’m still ahead. But really I don’t think the abuses are that overt anyway; Elon can buy his own Hawaii property. These things are usually more funds to hire friends and family and engage in political/social spending at lower effective costs.
    - snowwrestler 4y ago
      The worst case is actually that the IRS takes away the charity’s tax-exempt status, thereby negating the whole strategy.
      - brookst 4y ago
        If we're talking about billions of dollars, the worst case is spending millions on lawyers to contest the status for years.
    - dmix 4y ago
      So a [wealthy person] can live/work out of a Hawaiian compound bought for the purpose of a charity using a charities money? Or are we talking about the charity workers themselves living it up... like we've seen in those famous recent fancy houses purchases in Canada and UK.
  - abruzzi 4y ago
    true, but it is possible to use it in ways that benefit you or your priorities. I'm not saying that is what Musk is doing, but the ability to spend a billion dollars or potentially charitable endeavours can have direct benefits to the giver.
    - s1artibartfast 4y ago
      Sure, but there is nothing inherently wrong about that. If I'm gay and donate to an LGBT rights charity, I would love to see direct benefit. If I play sports and donate to my nonprofit Club, I also hope to see direct benefits. Charitable donation by definition is donating to things that Advance your priorities. Those might be a world with less hunger, saving lives, or whatever. Nobody donates to charities that work against their priorities.
  - kennend3 4y ago
    Sure you can: Here's a nice 6 million dollar house bought by a charity: https://nymag.com/intelligencer/2022/04/black-lives-matter-6-million-dollar-house.html https://nymag.com/intelligencer/2022/04/black-lives-matter-6... And a nicer 8 million dollar house bought by the same charity (all cash, must be nice) https://www.washingtonexaminer.com/restoring-america/fairness-justice/anger-over-blms-purchase-of-8-1-million-toronto-mansion-grows-as-groups-finances-scrutinized https://www.washingtonexaminer.com/restoring-america/fairnes... you see stories like this in the news fairly often, this is just two recent examples.
    - s1artibartfast 4y ago
      I totally agree that there are some corrupt Charities out there and bad practices. However, I don't think that's a condemnation of the concept of Charity as a whole.
      - kennend3 4y ago
        I'm not "condemning" charity, some are really good and I financially support two that are important to my own family. My point was simple, someone said charities cant buy houses, but they in fact can and do.
        s1artibartfast 4y ago
        That person was me. I agree that non-profits can buy real estate. Maybe I wasn't clear, but my point what that charities cant legally operate for the sole benefit of the donor. I used buying a vacation home as example of this. A charity cant do that legally. A shady charity might buy a headquarters as a pretext an use it as a vacation home.
  - mirzap 4y ago
    Exactly. It's more about control, where the money goes and how it is spent. It's not their money anymore and can't spent it as they wish. Rich people are obsessed with that (and I don't blame them. I wish rest of the world is concerned more to where their tax dollars or charity they give go). Huge percentage of charity money is spent on corrupt activities, bribe etc. People who give more tend to care more about where the money goes. I know for my self, I don't really care when I donate 1-2 $/eur. I don't think that in "value" terms because amount is so small and often I don't question too much (or investigate) where the money goes. But if I donate $500 then I try to gather as much information as I can about the organization, people involved, previous projects etc. I can imagine this feeling (having control) would only be amplified if I tried to donate millions of dollars.
- yardie 4y ago
  I'll do one even better. Let's say you give $50 to your charity from your $100. Then you "borrow" it back from the same charity to invest. You chose a high dividend investment strategy and make $10 in dividends alone. You pay $17.50 on your taxable income ($50) and $1.5 on taxable gains ($10). You can donate, borrow, and spend through that charity until the day you die. And you would still pay less in (19%) than your average working stiff.
- onlyrealcuzzo 4y ago
  I thought there's a limit to how much you can deduct from qualifying nonprofit donations, no?

stanleydrew 4y ago

I don't have experience donating to a charity that I created, so rules may be different, but in general no you don't pay any tax on donated in-kind securities and the amount of the deduction you take is generally the market value of the securities on the day they were transferred.

brookst 4y ago

Let’s say I make $100 at an effective income tax rate of 35%. I pay $35 in taxes and keep $65. Now say I make the same $100 but I give $20 to a qualifying nonprofit. I have $80 left, on which I pay 35% ($28), leaving me with $52. I have $13 less than I would have without the contribution. But if I own the nonprofit, funds under my control go from $65 to $72.

s1artibartfast 4y ago
The important distinction is that you cant spend those non-profit funds the same way you could cash in your pocket. It is under your control, but you can't use it to buy a Hawaiian island vacation home.
- yardie 4y ago
  You can absolutely borrow money from the charity. I worked at a non-profit and high-value donors would donate without actually needing to send money. It was all paperwork. The charity only really was paid when the donor died.
- brookst 4y ago
  Well, sort of. I can use it to buy a Hawaiian compound and retreat that my nonprofit will use, and it might have living space and my taste in art on the walls, and the people invited for conferences might be my friends. At that point it comes down to regulators’ appetite and ability to enforce, and of course the worst cast is some fines. As long as the EV of fines for inappropriate spending that is caught is less than the tax savings from both caught and uncaught abuses, I’m still ahead. But really I don’t think the abuses are that overt anyway; Elon can buy his own Hawaii property. These things are usually more funds to hire friends and family and engage in political/social spending at lower effective costs.
  - snowwrestler 4y ago
    The worst case is actually that the IRS takes away the charity’s tax-exempt status, thereby negating the whole strategy.
    - brookst 4y ago
      If we're talking about billions of dollars, the worst case is spending millions on lawyers to contest the status for years.
  - dmix 4y ago
    So a [wealthy person] can live/work out of a Hawaiian compound bought for the purpose of a charity using a charities money? Or are we talking about the charity workers themselves living it up... like we've seen in those famous recent fancy houses purchases in Canada and UK.
- abruzzi 4y ago
  true, but it is possible to use it in ways that benefit you or your priorities. I'm not saying that is what Musk is doing, but the ability to spend a billion dollars or potentially charitable endeavours can have direct benefits to the giver.
  - s1artibartfast 4y ago
    Sure, but there is nothing inherently wrong about that. If I'm gay and donate to an LGBT rights charity, I would love to see direct benefit. If I play sports and donate to my nonprofit Club, I also hope to see direct benefits. Charitable donation by definition is donating to things that Advance your priorities. Those might be a world with less hunger, saving lives, or whatever. Nobody donates to charities that work against their priorities.
- kennend3 4y ago
  Sure you can: Here's a nice 6 million dollar house bought by a charity: https://nymag.com/intelligencer/2022/04/black-lives-matter-6-million-dollar-house.html https://nymag.com/intelligencer/2022/04/black-lives-matter-6... And a nicer 8 million dollar house bought by the same charity (all cash, must be nice) https://www.washingtonexaminer.com/restoring-america/fairness-justice/anger-over-blms-purchase-of-8-1-million-toronto-mansion-grows-as-groups-finances-scrutinized https://www.washingtonexaminer.com/restoring-america/fairnes... you see stories like this in the news fairly often, this is just two recent examples.
  - s1artibartfast 4y ago
    I totally agree that there are some corrupt Charities out there and bad practices. However, I don't think that's a condemnation of the concept of Charity as a whole.
    - kennend3 4y ago
      I'm not "condemning" charity, some are really good and I financially support two that are important to my own family. My point was simple, someone said charities cant buy houses, but they in fact can and do.
      - s1artibartfast 4y ago
        That person was me. I agree that non-profits can buy real estate. Maybe I wasn't clear, but my point what that charities cant legally operate for the sole benefit of the donor. I used buying a vacation home as example of this. A charity cant do that legally. A shady charity might buy a headquarters as a pretext an use it as a vacation home.
- mirzap 4y ago
  Exactly. It's more about control, where the money goes and how it is spent. It's not their money anymore and can't spent it as they wish. Rich people are obsessed with that (and I don't blame them. I wish rest of the world is concerned more to where their tax dollars or charity they give go). Huge percentage of charity money is spent on corrupt activities, bribe etc. People who give more tend to care more about where the money goes. I know for my self, I don't really care when I donate 1-2 $/eur. I don't think that in "value" terms because amount is so small and often I don't question too much (or investigate) where the money goes. But if I donate $500 then I try to gather as much information as I can about the organization, people involved, previous projects etc. I can imagine this feeling (having control) would only be amplified if I tried to donate millions of dollars.
yardie 4y ago
I'll do one even better. Let's say you give $50 to your charity from your $100. Then you "borrow" it back from the same charity to invest. You chose a high dividend investment strategy and make $10 in dividends alone. You pay $17.50 on your taxable income ($50) and $1.5 on taxable gains ($10). You can donate, borrow, and spend through that charity until the day you die. And you would still pay less in (19%) than your average working stiff.
onlyrealcuzzo 4y ago
I thought there's a limit to how much you can deduct from qualifying nonprofit donations, no?