I am beginning to think I should subscribe to the Atlantic.
Very interesting!
It’s a great magazine.
Doing well by “doing good.”
IMO we should get rid of deductions. It’s facilitating to game the system. People who want to give will give after-tax money.
This article was fascinating, after having recently heard a presentation on the new tax laws which talked about how these donor funds are the thing to do.
Religious organizations are recipients of about a third of charitable contributions, and are important to important constituencies of both large parties, so it is politically unlikely that deductions for charitable contributions will be removed as a whole (as opposed to specifically targeted removals against entities seen as political opponents).
That would depend on how many of them itemize their deductions to benefit from tax exempting the donation. If most are small donors, it won’t matter whether charitable contributions are deductible or not.
These sound like nothing more than tax dodges.
It is.
But it would not be surprising if some of the largest and most influential religious organizations received significant amounts in large donations.
As much as nonreligious organizations? I am guessing not. I hear more about Bill Gates multiple billions.
The article did a terrible job explaining exactly how donor advised funds work.
When a donor funds a donor-advised fund, the money doesn’t belong to the donor any more. They have control over where it goes (provided it goes to a 501©3 charity) but it is not their money any more.
This is not a tax dodge. (There is weirdness about the way donated appreciated stock works, and that loophole should be fixed, but you have to give valuable securities away to get the tax deduction even then.)
The problem here is that people are creating donor-advised funds, but then not disbursing the money, because it’s work to disburse the money. There’s a simple legislative fix: merely require that X% of a fund be disbursed each year.
But why wouldn’t the donors just distribute money to bona fide well established charities? These billionaires have lawyers and financial advisors to help them make the choices.
If you are the recipient of a financial windfall-- say because of an IPO at your company-- you might want to give some money away right away so you are not tempted to keep it and spend it. But at the same time, you might not feel like you had done enough homework yet to decide where to direct a, say, quarter million dollar donation. The donor-advised fund allows you to temporize.
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It is a tax dodge. For example, your income is $500K and you are in 40% bracket. Let’s say you sell appreciated stocks valued at $100K with cost basis $50K. Your income increases from $500K to $550. You pay income tax on $500K and CG tax on $50K. If you instead donated the stocks, you get to deduct $100K, and you taxable income becomes $400K. You pay income tax on $400K. The net outflow for you is only about $50K in this scenario. There’s a great deal of tax savings in this and they should be required distribute.
I agree about the appreciated stock loophole. It should be fixed.
But notice that even in the case you mention, @Iglooo, it costs the person money to donate the stock. They end up $50K poorer. They lose money; they do not gain it.
https://givingusa.org/giving-usa-2017-total-charitable-donations-rise-to-new-high-of-390-05-billion/ indicates that religious organizations were the largest single category of charity donations, but not the majority. However, religious organizations received twice as much as education and three times as much as foundations.
I believe religious org got a lot of contributions. Is it from many individuals contributing smaller amounts or is it from a few but very sizable contributions? The former won’t make any difference as far as taxes go.
That was an individual case just to illustrate the tax advantage. DAFs the article is talking about is in the billions from corporations. It will follow corporate tax laws. I am guessing they donate profits and write it off as something like business expense. By the time, their accounts are done doing their accounting acrobatics, they will come out ahead. I can’t cite an example but I can stretch my imagination on what accounts can do.