You hear a lot about how “the rich” are using charities to effectively reduce their tax to minimal amounts, among other methods.
On the face of it without digging, it obviously makes people angry and detest the rich. But scratching beneath the surface, I’m not quite sure how exactly they would achieve this? In order to claim the tax back from money donated, you still have to… donate money? Which would still equal more than the money claimed back from tax.
So unless they are actually doing something illegal and funneling money through a charity, claiming tax, and then using that money from the charity to fund purchases not related to the charities mission, how exactly is it benefiting the donor (financially)?
In: Economics
When someone owns a charity they get pretty sizable tax breaks.
Take the Walton Family. These figures are from 2015, but they had their own charity, the Walton Family Foundation, and they donated something like 0.04% of their income to it – about 58 million dollars over 23 years, but just owning the charity gives them a tax break of over 3 billion per year. What they spend is less than 1% of what they save.
The IRS only requires a charity spend 5% of their income on their mission, which also opens the door for people to utilize Jackie O. Trusts. Essentially, this is where any unspent donations after 20-30 years are returned to the beneficiaries, tax free. Going back to the Waltons, this means that of the tiny percentage they give to their charity, only a fraction of that is spent on their mission – the rest goes to other members of the family.
There also isn’t much oversight on how charities spend money, or what they spend it on. Going back to the Walton Family Foundation, it funds the Crystal Bridges Museum of American Art… where they display Alice Walton’s collection of art. Essentially, they get a massive tax break every year for spending a tiny amount of money on their own property, and anything they don’t spend funds their families lifestyle.
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