The tax break is only around 20% of the donation. Even if the donated money is not spent as perfectly as you would like, there's 5 times as much of it.
It seems like that tax benefit is really reducing taxes on the donation itself, rather than enriching the donor (as implied)? Am I understanding that right?
You make a good point that I never thought about. People who donate their money get tax breaks because it’s sorting offsetting government spending.
But if they donate to a charity that spends the money outside of the US, should they get the full benefit of that tax break? It’s an interesting question that I never thought about.
It never makes sense to do it for the tax breaks. unless your income tax rate was 101%, then the reduction in your taxes is always less than the donation, meaning it's always a net loss to you. Remember, donations lower the total taxable income, not the total amount paid, so it's effectively like you never earned the money you donated.
Just wanted to point out that point 1 is very rarely valid; while you do get a tax break from donating to charity, what you save in taxes is not offset by the cost of the donation. The only case I can really think of where that is the case is if you have some property appraised at a value significantly higher than what you can actually sell it for on the market.
If you buy something for $10m you're out $10m. Yes, when you donate it you can write off those $10m, or present value at the day of the donation.
But you're only saving the taxes on those $10m of income, so you're still down $5m (assuming a 50% tax rate). And you could just as easily donate those $10m directly, and get the same tax write-off.
This is a common misconception about donations. Donating money never makes you better off financially because donations are eligible for tax deductions, not credits.
I frequently see the "they're just doing this for the tax breaks" sentiment for these kinds of donations (especially when the donor is a corporation or hyper-wealthy individual) but I don't understand the reasoning.
From what I understand of tax deductions, a donation of $X basically means that the donor can skip paying taxes on $X of income. This results in a savings of tax% * $X, which is always < $X. Since tax% is always < 100%, it seems that the donation is always negative-sum for the donor.
The tax deduction also seems like a boon for the beneficiary, since they receive $X instead of (1 - tax%) * $X.
Can you help me understand the cynicism? How does the donor benefit here (aside from PR etc)? It seems like they do not come out ahead financially, and the tax breaks benefit the recipient of the donation.
The majority of donations aren't conditioned on a tax write off from what research has been done.
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