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Can someone explain how that charity foundation thing is a loophole? Who/what is avoiding taxes?

by zo1 3y ago

kevingadd 3y ago
What the OP described is that as a rich person you can set up a "charity foundation", donate a bunch of money to it (reducing your tax burden), then have the foundation hold on to most of the money and when it spends it, spend it on "administration", which could be hiring your friends and family to do fake administrative work In the case of the Gates Foundation it's more likely to be real administrative work, but even the "good" ones are sitting on a ton of money that could potentially be put to more profitable (for society) uses
avidiax 3y ago
What do you want to do as a rich person? * Own and enjoy fantastic properties: - You own so many properties that you'll spend maybe a few weeks per year in each one - So donate these properties to your own charitable foundation, give tours while you aren't there. * Have lavish parties - Call it a charity ball, hold an auction at some point, now you look great and the canapés are tax-free. * Fly private - Book a meeting for your charitable purpose wherever you are going. Now you can deduct at least part of the gas for the private jet. * Enrich your friends and family members - Give them sweet jobs in your foundation. Pay them competitive salaries without going through a competitive candidate search. Continue this even after you die, essentially a tax-free annuity. * Lobby for your own business and ideological interests - Your private foundation can advocate for all sorts of things. Fund self-serving studies. Give full-ride scholarships to top thinkers that think like you. Host tours, vacations, parties and events that benefit your position. * Improve your social standing - Give some money to PBS. Open a wing at a school or museum with your name on it.
- gruez 3y ago
  >- Give them sweet jobs in your foundation. Pay them competitive salaries without going through a competitive candidate search. Continue this even after you die, essentially a tax-free annuity. It's not "tax free" when those salaries are taxed just like any other salary.
  - stephenhuey 3y ago
    Because you donated huge sums to your nonprofit, it reduced your tax burden by a significantly high amount, and that is probably a higher amount than what your friends and relatives will pay in taxes on their paychecks in your foundation, so you were able to keep more dollars from going to Uncle Sam and among your circle of loved ones instead.
    - gruez 3y ago
      >Because you donated huge sums to your nonprofit, it reduced your tax burden by a significantly high amount You know what also reduces your tax burden by a significant amount? Not taking the money out of your business and putting your friends/relatives on the payroll. That it also doesn't get taxed because it's a business expense. I'm not sure what the point of going through the charity is.
rout39574 3y ago
Let's say you have an investment account with millions of dollars in it. Let's say for the purpose of the example you are earning 30% a year[0]. You're accustomed to use that account to fund your travel. You convert some securities to cash to buy plane tickets to travel all over the world. You're going to pay capital gains taxes, or just income taxes, on those conversions to liquid capital. If instead you donate those securities to a "Charity", then the earned interest is not taxed, and you receive a tax benefit for moving the property to the charity entity. If the charity is happy for you to travel all over the world, then you're done. Same benefit accrues, tax burden becomes negligible. What's left to determine (from our electronic armchairs) is: Does the charity do good for the nation, for the world, to an extent that it's worth forgoing the tax income? I expect that the answer is "Yes" for several of the charities we consider household names. I expect that the answer is "No" for the overwhelming majority of charities, by count or by endowment. We could start by taxing Harvard. :) [0] Not that anything is dependable year on year, but that's the rate that university endowments made in 2021.

Can someone explain how that charity foundation thing is a loophole? Who/what is avoiding taxes?

by zo1 3y ago

Can someone explain how that charity foundation thing is a loophole? Who/what is avoiding taxes?

What the OP described is that as a rich person you can set up a "charity foundation", donate a bunch of money to it (reducing your tax burden), then have the foundation hold on to most of the money and when it spends it, spend it on "administration", which could be hiring your friends and family to do fake administrative work In the case of the Gates Foundation it's more likely to be real administrative work, but even the "good" ones are sitting on a ton of money that could potentially be put to more profitable (for society) uses

avidiax 3y ago

What do you want to do as a rich person? * Own and enjoy fantastic properties: - You own so many properties that you'll spend maybe a few weeks per year in each one - So donate these properties to your own charitable foundation, give tours while you aren't there. * Have lavish parties - Call it a charity ball, hold an auction at some point, now you look great and the canapés are tax-free. * Fly private - Book a meeting for your charitable purpose wherever you are going. Now you can deduct at least part of the gas for the private jet. * Enrich your friends and family members - Give them sweet jobs in your foundation. Pay them competitive salaries without going through a competitive candidate search. Continue this even after you die, essentially a tax-free annuity. * Lobby for your own business and ideological interests - Your private foundation can advocate for all sorts of things. Fund self-serving studies. Give full-ride scholarships to top thinkers that think like you. Host tours, vacations, parties and events that benefit your position. * Improve your social standing - Give some money to PBS. Open a wing at a school or museum with your name on it.

gruez 3y ago
>- Give them sweet jobs in your foundation. Pay them competitive salaries without going through a competitive candidate search. Continue this even after you die, essentially a tax-free annuity. It's not "tax free" when those salaries are taxed just like any other salary.
- stephenhuey 3y ago
  Because you donated huge sums to your nonprofit, it reduced your tax burden by a significantly high amount, and that is probably a higher amount than what your friends and relatives will pay in taxes on their paychecks in your foundation, so you were able to keep more dollars from going to Uncle Sam and among your circle of loved ones instead.
  - gruez 3y ago
    >Because you donated huge sums to your nonprofit, it reduced your tax burden by a significantly high amount You know what also reduces your tax burden by a significant amount? Not taking the money out of your business and putting your friends/relatives on the payroll. That it also doesn't get taxed because it's a business expense. I'm not sure what the point of going through the charity is.

rout39574 3y ago

Let's say you have an investment account with millions of dollars in it. Let's say for the purpose of the example you are earning 30% a year[0]. You're accustomed to use that account to fund your travel. You convert some securities to cash to buy plane tickets to travel all over the world. You're going to pay capital gains taxes, or just income taxes, on those conversions to liquid capital. If instead you donate those securities to a "Charity", then the earned interest is not taxed, and you receive a tax benefit for moving the property to the charity entity. If the charity is happy for you to travel all over the world, then you're done. Same benefit accrues, tax burden becomes negligible. What's left to determine (from our electronic armchairs) is: Does the charity do good for the nation, for the world, to an extent that it's worth forgoing the tax income? I expect that the answer is "Yes" for several of the charities we consider household names. I expect that the answer is "No" for the overwhelming majority of charities, by count or by endowment. We could start by taxing Harvard. :) [0] Not that anything is dependable year on year, but that's the rate that university endowments made in 2021.