4 ms·
Right, I first learned about this when being forced to watch some of the "Housewives of ..." shows by my wife. I couldn't figure out why all these objectively t
by bane 4y ago
Right, I first learned about this when being forced to watch some of the "Housewives of ..." shows by my wife. I couldn't figure out why all these objectively terrible people all had their own personal charities (many of the episodes revolve around the social group of the show going to each other's charity events).
It turns out it's a common, but legal, "scam". Take in funds from fundraisers, give away a little, then pay yourself a ridiculous salary for running the organization with the rest of the money. You can also have the charity "buy" things for future fundraisers like trips on private jets, or fundraising events in the Bahamas, etc.
I have no idea how it has stayed even remotely legal other than it seems a great many people above a certain wealth level all seem to be involved in it.
- hindsightbias 4y agoYou'll see a lot of giant yachts that are in "research" foundations. They get tax breaks for supporting "research" and have a few jaunts with scientist in popular vacation areas.
- culi 4y agoRight. I mean 501c3's rules around politics are notoriously lax. You basically just can't donate to a candidate of a party. But there's plenty of 501c3's that simply don't explicitly represent a certain party go to pains to reach out to areas that are very reliably a certain party. A lot of these "charities" being donated to out of DAFs are for political influence like this. They can push for laws and regulations that will benefit, in this case, Tesla or Twitter or whatever, and Musk now can play politics without having to pay taxes on that money
- mrep 4y ago> then pay yourself a ridiculous salary for running the organization with the rest of the money So instead of paying 20% cap gains, they choose to pay 37% federal income taxes + state?
- trs8080 4y agoYes, because pocketing money directly from fundraising activities for a 501c3 is illegal, regardless of if you pay capital gains on it.
- mrep 4y agoI'm not sure what you are saying. Donating capitol that has gained value to a non-profit to then use to pay yourself a salary with causes you to pay more taxes than if you had just realized the gains and skipped the non-profit as cap gains taxes are lower than income taxes for the top bracket. OP "legal scam" causes them to pay more taxes.
- jcheng 4y agoIt may happen, but it’s not legal, it’s called inurement and the IRS can hammer you or strip the organization of its tax exempt status if it finds out. This applies not only to ridiculous salaries but also use of the charity’s assets for private benefit. https://www.501c3.org/dangers-of-nonprofit-inurement-and-private-benefit/ https://www.501c3.org/dangers-of-nonprofit-inurement-and-pri... For instance: https://apnews.com/article/campaigns-donald-trump-us-news-ap-top-news-lawsuits-7b8d0f5ce9cb4cadad948c2c414afd57 https://apnews.com/article/campaigns-donald-trump-us-news-ap...
- bane 4y agoWhat makes a charity "fake"? If I start a charity, make myself chairperson and CEO or President or whatever, I "deserve" a reasonable salary. If my fundraising events bring in my salary + event expenses + what I can use for charitable activities, what does it matter if what actually goes out the door is 5% of all donations? I have to pay staff salaries and I have to pay event hosting fees. In other words, for most of these things the difference between an A-grade charity like the American Red Cross (which puts out something like 90% of its charitable donations to actual charitable activities and the CEO makes over $700k/yr) and a charity with a CEO who makes $200k, but that's 50% of their overall donation income, but still moves their money forward towards their stated goal, the legal difference is imperceptible. The second charity may just be small, or not good at raising funds, or has limited reach, or has a charitable focus nobody cares about, or could just be a way for some socialite to make an extra $200k a year while hosting fundraising "parties" every quarter...it's just not possible to really tell. Even in this example, the charity looks more legitimate than what the original posting is about, and there are tens of thousands of these.
- chrischen 4y agoThis sounds like a different scam than tax avoidance. They aren’t avoiding taxes so much as outright scamming people into donating to a fake charity.