3 ms·

Why does the article refer to this as a tax loophole? Isn't this a tax deduction working as intended? It's giving a tax break to people who support charities.

lmm 13y ago
The intention is that donations to charity don't have income tax applied to them. When you donate an object like a car it's not really the same - most likely you bought it, got your money's worth from it and now want to be rid of it, so it's not really like you're donating something you paid income tax on.
- spullara 13y ago
  You paid income tax on the money used to pay for the car. By donating the residual value you are recovering part of the income tax that you already paid.
  - lmm 13y ago
    Yes, but for many people I suspect the value to them is much lower than the auction price. If you were following standard accounting like a business you would probably have fully depreciated the car before the time came to auction it.
csense 13y ago
> Why does the article refer to this as a tax loophole? A "charitable donation" that mostly goes directly to lining the pockets of a for-profit entity shouldn't be tax deductible, but in this case it is deductible -- hence, a tax loophole. In other words, charities getting into the side business of large-scale car sales to generate revenue bends the law in a direction its authors never intended [1]. In particular, the charities' for-profit partners in this side business end up with most of the revenue from an immediate liquidation of these tax-deductible donations -- and that outcome seems to go against the fundamental concept of tax-deductible charitable giving. This practice is apparently legal and lightly regulated, according to the article -- it's within the letter of the law. But it goes against the spirit of the law, which is that only donations to charities should be tax deductible. [1] This is according to the article's idea of the law's authors' intent: That charities would use the donated cars for their own operations, or give them to the poor people they serve. Is this picture of the law's authors' intentions correct? That's another discussion entirely.

lmm 13y ago

The intention is that donations to charity don't have income tax applied to them. When you donate an object like a car it's not really the same - most likely you bought it, got your money's worth from it and now want to be rid of it, so it's not really like you're donating something you paid income tax on.

spullara 13y ago
You paid income tax on the money used to pay for the car. By donating the residual value you are recovering part of the income tax that you already paid.
- lmm 13y ago
  Yes, but for many people I suspect the value to them is much lower than the auction price. If you were following standard accounting like a business you would probably have fully depreciated the car before the time came to auction it.

csense 13y ago

> Why does the article refer to this as a tax loophole? A "charitable donation" that mostly goes directly to lining the pockets of a for-profit entity shouldn't be tax deductible, but in this case it is deductible -- hence, a tax loophole. In other words, charities getting into the side business of large-scale car sales to generate revenue bends the law in a direction its authors never intended [1]. In particular, the charities' for-profit partners in this side business end up with most of the revenue from an immediate liquidation of these tax-deductible donations -- and that outcome seems to go against the fundamental concept of tax-deductible charitable giving. This practice is apparently legal and lightly regulated, according to the article -- it's within the letter of the law. But it goes against the spirit of the law, which is that only donations to charities should be tax deductible. [1] This is according to the article's idea of the law's authors' intent: That charities would use the donated cars for their own operations, or give them to the poor people they serve. Is this picture of the law's authors' intentions correct? That's another discussion entirely.