The tax code rewards generosity. But probably not yours. |
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The tax code rewards generosity. But probably not yours.
Why giving to charity is a better deal if you’re rich.
If you’ve been staring at your tax bill and wondering how to keep more of your money, money, money to yourself next year, you might consider taking a page out of the billionaire’s playbook. You could be like Steve Ballmer and write off the costs of buying a sports team, or make like Mark Zuckerberg and dial down your salary to just $1 per year.
Or, if those things seem daunting, you might just donate to charity instead.
So you owe the IRS a lot of money? Here’s what to do.
Every year, the US Treasury loses upward of $65 billion in revenue — enough money to pay for a national universal pre-K program by one count — to charitable deductions. But while Americans of all income levels give back, it’s the richest Americans who have reaped almost all of the benefits on their tax bill.
Over nine in 10 Americans won’t claim the charitable tax break this year because it only makes financial sense for people who have enough expenses to “itemize” their taxes, rather than take a standardized deduction — though that may be changing next tax cycle.
Meanwhile, over 80 percent of the country’s wealthiest earners — the millionaires and multimillionaires who almost always itemize — get money back for every dollar they give to charity.
Rewarding such giving means more money for charity — one model estimates that giving would fall by as much as $50 billion a year if the deduction were eliminated. But the policy also means less revenue for the government.
Michael Bloomberg, for example, gave about $4.3 billion to charity last year, mostly through his own foundation. That would in theory translate into a $1.6 billion tax break, assuming he’s taxed at the top income rate of 37 percent. So by this count, the donations really only cost him $2.7 billion. Even for those who aren’t quite as wealthy, tax-deductible donations are sort of like buying a $20 gift card that you only need to pay $13 for, earmarked for a charity of your choice.
That is a good thing or a bad thing, depending on who you ask. Many wealthy people use their philanthropy to underwrite........