Why do people donate to charity to "avoid tax"?

[Eeezee]

Originally posted by: dullard

Originally posted by: mugs
I think your scenario is pretty atypical, and I would venture a guess that the majority of people don't come out ahead by donating to charity. And I'd like to think they are smart enough to realize that.

I will admit that it isn't something that everyone can do.

But, it isn't all that uncommon either. I used numbers slightly above the median household income for a married couple (it was $66,000 in 2005 before deductions when I used after deduction numbers).

I also used capital gains, which many people have from selling stocks to real estate to owning a small business. Many people have capital gains. It is a common practice if you own a small business to keep your salary low and pay yourself capital gains instead of paying themselves a high salary (you avoid medicare and social security taxes that way). Combined with lower capital gain tax rates and you have a double bonus.

So, take an income that applies to many people with capital gains that many people have and you get my scenario. You just have to make certain you donate enough money to stay in 15% or lower tax brackets.

Note: upon futher investigation, it looks like the capital gains tax is currently 0% for a couple years in the lower income tax brackets. I used 5% in the example above. That makes my scenario even more beneficial for the person who donates.

I did a quick Google search of "donate to eliminate capital gains tax" and got 250,000 websites that hint at or explicitly say what I typed. It is a trick that is well known.

How many people do you think earn much money in capital gains? Most people don't own a business. Most people don't regularly sell real estate. Most people don't regularly sell stock (not to the point where their capital gains would amount to much anyway).

I think some people have capital gains, but most don't (or have an insignificant amount)

 

[jagec]

Don't think of donating to charity as a way of avoiding tax, think of the tax code as a way of multiplying your charitable donations. Instead of donating $300 and having it cost you $300, you donate $600, write it off on your taxes, and it ends up costing you $300. Win!
(Numbers are only provided as an example and may not reflect actual charitable donations. Other terms and restrictions may apply. See your tax professional for details.)

 

[Ns1]

Originally posted by: Eeezee

Originally posted by: dullard

Originally posted by: mugs
I think your scenario is pretty atypical, and I would venture a guess that the majority of people don't come out ahead by donating to charity. And I'd like to think they are smart enough to realize that.

I will admit that it isn't something that everyone can do.

But, it isn't all that uncommon either. I used numbers slightly above the median household income for a married couple (it was $66,000 in 2005 before deductions when I used after deduction numbers).

I also used capital gains, which many people have from selling stocks to real estate to owning a small business. Many people have capital gains. It is a common practice if you own a small business to keep your salary low and pay yourself capital gains instead of paying themselves a high salary (you avoid medicare and social security taxes that way). Combined with lower capital gain tax rates and you have a double bonus.

So, take an income that applies to many people with capital gains that many people have and you get my scenario. You just have to make certain you donate enough money to stay in 15% or lower tax brackets.

Note: upon futher investigation, it looks like the capital gains tax is currently 0% for a couple years in the lower income tax brackets. I used 5% in the example above. That makes my scenario even more beneficial for the person who donates.

I did a quick Google search of "donate to eliminate capital gains tax" and got 250,000 websites that hint at or explicitly say what I typed. It is a trick that is well known.

How many people do you think earn much money in capital gains? Most people don't own a business. Most people don't regularly sell real estate. Most people don't regularly sell stock (not to the point where their capital gains would amount to much anyway).

I think some people have capital gains, but most don't (or have an insignificant amount)

Most people don't donate 20k to charities either. I do a ton of returns and for the most part people making 200-500k don't donate to shit.