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
Own nothing, control everything. The rich often set up private foundations with millions of dollars. They and their families can work for these foundations often at a very good salary. The money is passed to the foundation tax free. The foundation can do something nebulous and difficult to say if anything was accomplished like : raising awareness about something. The foundation has to payout 5 percent of it’s net worth every year including what it costs to administer the foundation but the fund is often earning double of what it’s paying out and so continues to grow. But you can’t payout too much to yourself or relatives or the IRS will come knocking. And you can’t donate to politicians. But you can hire their kids or spouse and transfer money to the politician’s foundation. It’s a big club but you ain’t in it.
They control the charities. So they donate the money, get tax breaks, and receive the money back later.
Donating money removes if from your “taxable income”. The benefit is that you donated to a charity you wanted to donate money to. There is no financial benefit to doing it for the donator EXCEPT That if you donate enough money, you get praised for doing it and people think you’re a great person, which you very well may be.
If people complain that some super rich dude donated money somewhere for “tax purposes”, then they have very little understanding of how taxes work. If a billionaire donates a million bucks to charity, good for them. What they get out of it is that we say “Wow, that guy donated a million bucks!” it’s good PR.
Plenty of people pointing out how the tax deductions work and how it doesn’t really result in the rich people keeping their money just them paying less taxes, but there’s another important note when the rich person also controls the charity they’re donating to.
Elon Musk is a great example here. He donates a significant amount of money to the Musk Foundation to cut down on the amount he pays in taxes, but he’s on the Board of Directors for it so he still controls that money and the Musk Foundation doesn’t really give out that much. They gave a chunk of money to Cameron County to help their schools and revitalize the downtown core… Right after one of his rockets exploded over the place sending shrapnel all over. He also likes to talk about how the Musk Foundation builds schools, but those schools are all being built near worker communities for his factories, and having access to a school is kind of important to get families to move out to these communities. He’s getting tax breaks for donating to charity, but none of the charity work is being done for actual charity. It’s just another branch of his company.
Also sometimes they own/controll the charity and use it for lobbying for things they wanted anyways. In essence they move money from one pocket to another.
A common way is that the rich person sets up a charitable foundation that they have sole control over. All the foundation does is (supposedly) distribute money and other assets to other charities in the form of donations. Rarely does the foundation engage in any charitable activities itself. Effectively, its a charity in name only. So the rich person donates money to their charitable foundation. Or they donate stock or other assets to the foundation. They deduct from their taxes the money or the “value” of the assets which they can likely inflate for their tax deduction.
The foundation might hold on to the money or other assets for decades and never really distribute them to other charities. Meanwhile the rich person – as the sole person with control of the foundation – maintains control over that money and those assets. They can’t ever spend the money directly on themselves without theoretically getting into huge trouble, but simply controlling it it gives them influence. And of course if the foundation owns stock it would have the voting rights to that stock and with the rich person being in sole control of the foundation, he has sole control of those voting rights. The money earns interest, the assets might appreciate, and meanwhile no one is paying any taxes on any of it.
And then of course you’ve got these foundations employing people like the rich person’s friends and paying them a salary that’s probably completely out of line with any actual work they may actually be doing for the foundation. And by “people” we can include the rich person’s family and even the rich person his or her self – after all, aren’t they entitled to be compensated for all the “work” they’re doing for the foundation?
One doesnt make money on charity tax returns. having a charity in your business structure is a place to park and spend money. charities only have to use 10% of donations to the cause. and I’m sure they get taxed less.
if you made a million dollars. instead losing 50 percent of it. You can donate it to a charity you own. Use ten percent for a good cause and appropriate funds you need through the charity. Rinse and repeat. I’m sure there is other benefits as well.
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