Charity tax limits upset man

[ReverendHellh0und]

Charity tax limits upset man


Washington Times - Charity tax limits upset many


Democrats and Republicans poured cold water on President Obama's budget plan to cut down on wealthy taxpayers' charitable giving tax deductions, the second of his ambitious cost-savings plans to earn lawmakers' scorn, and underscoring the legislative minefield he is entering.

Hey Obama! Who do you think that is going to hurt more? Me or the Charities I (used to) give to?



Idiot. :lol:

 

[Goobieman]

I write off my FICA withholdings as donations to charity.

 

[Middleground]

Ever hear of tax shelters, Rev? That's how the rich really get wealthy. It's not through RRSPs, or as you Yanks like to call 'em, CDs.

 

[ReverendHellh0und]

Ever hear of tax shelters, Rev? That's how the rich really get wealthy. It's not through RRSPs, or as you Yanks like to call 'em, CDs.

What does this have to do with charitable contributions?

 

[Middleground]

What does this have to do with charitable contributions?

From what I understand, a lot.

Not sure how things are different in the US, but here in Canada, a $5000 charitable contribution can turn out to be more than $5000 in your pocket. Say if the charity builds houses for the poor, and they buy $10,000 worth of bricks from your $5000 donation, they can legally record that your contribution was $10,000. At least that's what a financial planner told me a few years back, but he could be full of bull, or my memory of what he explained is not quite accurate. In any event, tax shelters do exist, and are based-on charitable donations. I have not read the article yet, so I'd don't know exactly what are the new charitable limits.

 

[ReverendHellh0und]

From what I understand, a lot.

Not sure how things are different in the US, but here in Canada, a $5000 charitable contribution can turn out to be more than $5000 in your pocket. Say if the charity builds houses for the poor, and they buy $10,000 worth of bricks from your $5000 donation, they can legally record that your contribution was $10,000. At least that's what a financial planner told me a few years back, but he could be full of bull, or my memory of what he explained is not quite accurate. In any event, tax shelters do exist, and are based-on charitable donations. I have not read the article yet, so I'd don't know exactly what are the new charitable limits.

Ok. Lets say this is all true and Obama lowers the limits. Who suffers? Me or the charity more?

 

[American]

Hear hear, let's jack up welfare and lower real charity, that's how we help the poor.

 

[Middleground]

Ok. Lets say this is all true and Obama lowers the limits. Who suffers? Me or the charity more?

It all depends on the limits that have been set.

 

[ReverendHellh0und]

It all depends on the limits that have been set.

I think you know the answer here.


If you make it more difficult or expensive for me to donate to the boys and girls club of Paterson.


Who is going to suffer more? Me who keeps that money cause its going to be taxed and use it to pay off the tax raise that I will be seeing shortly, or the childeren who benefited for over a decade my generous donations?

 

[Kushinator]

Donating to charities equates to tax deductions, not credits. If you make $260k per year, and do not want to get put into the new Obama tax bracket, you donate $11k to charity, reducing your taxable income to $249k. Now i am not aware of the new tax ramifications for the $250k +, but lets just assume its equates to 5% more paid in taxes.

That equates to saving $12,500 in tax savings by giving away $11,000 (opportunity cost forgone was $1,500). Of course it is much more complicated than this, as taxation is progressive on income intervals. If the highest tax bracket is increased from 35%-45%, the IRS does not tax 45% of your income if you are a high earner, instead only 45 of your income over $250k. Of course, my 45% figure is completely hypothetical...

 

[Middleground]

I think you know the answer here.


If you make it more difficult or expensive for me to donate to the boys and girls club of Paterson.


Who is going to suffer more? Me who keeps that money cause its going to be taxed and use it to pay off the tax raise that I will be seeing shortly, or the childeren who benefited for over a decade my generous donations?

It seems--as Golden Boy posted and I hinted--that it pays off more to donate, rather than not.

But like I said, I don't know enough about this--and Obama's new plan-- to be fully sure. It seems you don't either, so let's not rush to quick judgements.

 

[Kushinator]

It seems--as Golden Boy posted and I hinted--that it pays off more to donate, rather than not.

But like I said, I don't know enough about this--and Obama's new plan-- to be fully sure. It seems you don't either, so let's not rush to quick judgements.

What if you make $10,000,000? The person in the $250k+ bracket has a higher opportunity cost than the person making 40x that. IMHO $250k is upper middle class, and in no way should be considered rich. The pundits for progressive taxation always seem to forget that the highest tax bracket is not in the millions.

So while my example shows it would be positive for the person making slightly more than the bracket, making even $10k more creates a negative situation.

 

[Middleground]

What if you make $10,000,000? The person in the $250k+ bracket has a higher opportunity cost than the person making 40x that. IMHO $250k is upper middle class, and in no way should be considered rich. The pundits for progressive taxation always seem to forget that the highest tax bracket is not in the millions.

So while my example shows it would be positive for the person making slightly more than the bracket, making even $10k more creates a negative situation.

Thx, GB.

What is the difference between before and after the new proposed tax limits? Say someone who makes a million a year donates $100,000 to charity. What was his "return" then and now? Also, what do you know about tax shelters?

 

[Kandahar]

I don't support capping charitable contributions unless it's a part of an across-the-board simplification of the tax code. And even then, that's one of the few deductions I might support (although churches shouldn't count as charity unless they're actually being charitable with their money).

For example, I think people get to deduct a lot of stupid **** that they shouldn't be able to deduct. Ideally, I'd like to see all deductions eliminated except for medical/education/charity. That would really help the economy because businesses and individuals wouldn't have to waste so much money just to fill out their taxes.

 

[ALiberalModerate]

What if you make $10,000,000? The person in the $250k+ bracket has a higher opportunity cost than the person making 40x that. IMHO $250k is upper middle class, and in no way should be considered rich. The pundits for progressive taxation always seem to forget that the highest tax bracket is not in the millions.

So while my example shows it would be positive for the person making slightly more than the bracket, making even $10k more creates a negative situation.

You do realize that progressive taxation only applies to income over the tax bracket.

For example, if a married couple earns 275,000 dollars a year under Obama's plan to return the top bracket to Clinton era levels:

Their first 15,650 dollars is taxed at 10% - just like someone earning just 10k a year.

Their income between 15k and 63k is taxed at 15% - just like someone earning 60k

Their income between 63k and 128k is taxed at 25% - just like someone earning 120k a year.

Their income between 128k and 195k is taxed at 28% - just like someone earning 190k a year.

Their income between 195k and 250k is taxed at 33% - just like someone earning 240k a year.

Then only their income between 250k and 275k is taxed at the new rate of 39%.

A lot of people that are against progressive taxation don't even know how it works. They think that as soon as one gets into a higher bracket that all their income is taxed at the higher rate.

Moreover, after deductions (kids, interest, state and local taxes, and so on), most households would have to earn well over 250k a year for any of their income to end up being taxed at the 39% rate.

Its a myth that a raise can reduce your net income if it puts you in a higher bracket. The only conceivable way that could happen is if you fell under the AMT. In my life I have jumped through a few income brackets as I went up the career later and none of those increases in gross income ever resulted in a net reduction of income after taxes.

 

[UtahBill]

Donating to charities equates to tax deductions, not credits. If you make $260k per year, and do not want to get put into the new Obama tax bracket, you donate $11k to charity, reducing your taxable income to $249k. Now i am not aware of the new tax ramifications for the $250k +, but lets just assume its equates to 5% more paid in taxes.

That equates to saving $12,500 in tax savings by giving away $11,000 (opportunity cost forgone was $1,500). Of course it is much more complicated than this, as taxation is progressive on income intervals. If the highest tax bracket is increased from 35%-45%, the IRS does not tax 45% of your income if you are a high earner, instead only 45 of your income over $250k. Of course, my 45% figure is completely hypothetical...

Your first paragraph and the second seem to disagree with each other.
you only pay the higher tax rate (call it 25% under 250K, and 30% higher) on the income above 250K, so you cannot save 12.5K by donating 11K.....you save about $550 is all. You were going to pay 25% on that 11k anyway......
and bear in mind that the rates are applied to AGI, adjusted gross income. You have to earn a lot more than $250K to worry about paying a new higher rate unless you have zero deductions...

 

[ALiberalModerate]

Your first paragraph and the second seem to disagree with each other.
you only pay the higher tax rate (call it 25% under 250K, and 30% higher) on the income above 250K, so you cannot save 12.5K by donating 11K.....you save about $550 is all. You were going to pay 25% on that 11k anyway......
and bear in mind that the rates are applied to AGI, adjusted gross income. You have to earn a lot more than $250K to worry about paying a new higher rate unless you have zero deductions...

I have found few people that actually understood progressive taxation that still thought it would be better to have something like a flat tax.

 

[Kushinator]

You do realize that progressive taxation only applies to income over the tax bracket.

For example, if a married couple earns 275,000 dollars a year under Obama's plan to return the top bracket to Clinton era levels:

Their first 15,650 dollars is taxed at 10% - just like someone earning just 10k a year.

Their income between 15k and 63k is taxed at 15% - just like someone earning 60k

Their income between 63k and 128k is taxed at 25% - just like someone earning 120k a year.

Their income between 128k and 195k is taxed at 28% - just like someone earning 190k a year.

Their income between 195k and 250k is taxed at 33% - just like someone earning 240k a year.

Then only their income between 250k and 275k is taxed at the new rate of 39%.

Yes i do, which is why i talked about the taxation intervals.

A lot of people that are against progressive taxation don't even know how it works. They think that as soon as one gets into a higher bracket that all their income is taxed at the higher rate.

Which is why i stated:

If the highest tax bracket is increased from 35%-45%, the IRS does not tax 45% of your income if you are a high earner, instead only 45 of your income over $250k. Of course, my 45% figure is completely hypothetical...

Its a myth that a raise can reduce your net income if it puts you in a higher bracket. The only conceivable way that could happen is if you fell under the AMT. In my life I have jumped through a few income brackets as I went up the career later and none of those increases in gross income ever resulted in a net reduction of income after taxes.

There are instances, although few and far between, which would put your income, that pushes you into another interval (bracket), into a state of flux. Say you make $25 per hour, and only $1,000 gets taxed in a higher bracket. There could be the sentiment that a person would rather not work any extra time (giving more production) due to an increase in opportunity cost. If working decreases your earning to $24.50/ hr, it truly is not worth the increase in production. Of course, that extra thousand might be something important to people. And yes, i am being entirely hypothetical.

I think the point the Rev was making was that the increased tax over $250k crowded out his charity giving. What would have gone to charity now goes to Uncle Sam.

My issue with progressive taxation is its inefficiency. A guy making $10,000,000 yearly has a higher opportunity cost, in regards to disposable income, than Warren Buffet. And yet they are in the same high income bracket. If progressive taxation was "worked" thoroughly, as in all the way up to incomes of $100,000,000, it would create a lag via the cost of accounting (private) and examination through the IRS. So the regular man has to front the most in regards to disposable income.

 

[obvious Child]

Donating to charities equates to tax deductions, not credits. If you make $260k per year, and do not want to get put into the new Obama tax bracket, you donate $11k to charity, reducing your taxable income to $249k. Now i am not aware of the new tax ramifications for the $250k +, but lets just assume its equates to 5% more paid in taxes.

That equates to saving $12,500 in tax savings by giving away $11,000 (opportunity cost forgone was $1,500). Of course it is much more complicated than this, as taxation is progressive on income intervals. If the highest tax bracket is increased from 35%-45%, the IRS does not tax 45% of your income if you are a high earner, instead only 45 of your income over $250k. Of course, my 45% figure is completely hypothetical...

You forgot something rather important. Donating appreciated property to charity that you've held for more then a year can be taken at fair market value.

Therefore, someone who's in that 250k bracket who's partnership interest is worth $10,000 who receives $10,000 in cash and a $100,000 piece of property while have zero basis for that piece of property. They hold it for a year and then donate it for $120,000. Thank GOD for the 30% limit on property donations or that guy just managed to reduce his taxable income from $250,000 to $130,000 for effectively nothing. The tax savings on that is truly massive. He just reduced his taxes by $37,552.5 for 2009 and that's just for single. $37,552.5 in cash trade for an adjusted basis of nothing? I like that. Now, if he had sold that property and had a bit more income, hello highest tax bracket. Ewwww.

Charity limits exist for a reason.

I can keep making up scenarios for people to abuse the daylights out of charitable contributions.

 

[obvious Child]

I think you know the answer here.

Actually we don't. What we need to to answer that question is the percent of donations that charities receive that are substantial amounts of the donating party's income. If charities primarily get their donations from lots of people donating small amounts, say $1000 to $500, lowering the limit won't change crap. If charities primarily get their donations from a few large donations then limits matter. What we don't have is that information, so no, we don't know the answer.

Furthermore, how many rich people donate just below or at the limit? On top of that even if charitable contributions are reduced in limit, it's extremely unlikely that the charitable contribution carry over is going to be removed. So a person donating large amounts of money will be able to take a smaller amount now but will be able to carry forward it anyways as they have done in the past. In some ways, that's actually good tax planning as you can create large amounts of itemized deductions for future years when you expect your income to rise or when you'll have less income. For example, if you donate a million dollars but can only take $250,000 in CC for Y1, you carry over $750,000. Say next year your income drops significently. You can then take carry over to reduce your taxable income. In the next year, your income skyrockets and you can take the carry over then too. This is particularly useful for times when taxes are going to increase. Put a lot away when taxes are low and when it costs you little to donate and reduce your taxable income when taxes go up.

 

[Kushinator]

You forgot something rather important. Donating appreciated property to charity that you've held for more then a year can be taken at fair market value.

Therefore, someone who's in that 250k bracket who's partnership interest is worth $10,000 who receives $10,000 in cash and a $100,000 piece of property while have zero basis for that piece of property. They hold it for a year and then donate it for $120,000. Thank GOD for the 30% limit on property donations or that guy just managed to reduce his taxable income from $250,000 to $130,000 for effectively nothing. The tax savings on that is truly massive. He just reduced his taxes by $37,552.5 for 2009 and that's just for single. $37,552.5 in cash trade for an adjusted basis of nothing? I like that. Now, if he had sold that property and had a bit more income, hello highest tax bracket. Ewwww.

Charity limits exist for a reason.

I can keep making up scenarios for people to abuse the daylights out of charitable contributions.

Yes there are an entire industry devoted to forgoing taxation. My biggest issue was when they removed the ability to convert series E bonds into tax deferred series HH bonds.

 

[UtahBill]

Charitable giving is easily abused come tax time....
I assisted some people with tax returns for one season, and it is just one of many methods people try to reduce taxes illegally. I always warned them that come audit time, withoug receipts, they are on their own. BUt they swore they did the donation, or paid the dentist, or whatever....

 

[Orion]

I think this legislation is meant to target the rich who abuse the system, in which case, good for Obama. It's sad that the honest people have to suffer, but I don't see how a law could be created that serves the honest but targets the rich?

 

[obvious Child]

Yes there are an entire industry devoted to forgoing taxation.

Yay for tax Planning! How to dodge, duck, dip, dive, and dodge taxation!

 

[Harry Guerrilla]

I think this legislation is meant to target the rich who abuse the system, in which case, good for Obama. It's sad that the honest people have to suffer, but I don't see how a law could be created that serves the honest but targets the rich?

Why isn't he going after all the "poor" people who falsely claim EITC using children that aren't even theirs.

I did taxes for a season and the abuse of EITC by poor people is ridiculous.

It looks like this is an easy way of federalizing charity.