Tax-Deductable Charity

[Mr Skeptic]

So a lot of folks, for example Rush Limbaugh and Stephen Colbert, have given to charity, based at least in part on things like fund-raising and auctions.

 

I have two questions:

1) How exactly does the tax-deductible aspect work? It can't all be deduced directly from the taxes, can it?

2) Who exactly gets to deduce this from their taxes? For example, if someone bids for an item knowing that the funds go to charity, and probably over-paying for it for that reason, do they get to count that as tax-deductible? Likewise, can the host, knowing that they got more money for an item than its real value since it is going toward charity, count all that money as tax deductible?

[ParanoiA]

So a lot of folks, for example Rush Limbaugh and Stephen Colbert, have given to charity, based at least in part on things like fund-raising and auctions.

 

I have two questions:

1) How exactly does the tax-deductible aspect work? It can't all be deduced directly from the taxes, can it?

2) Who exactly gets to deduce this from their taxes? For example, if someone bids for an item knowing that the funds go to charity, and probably over-paying for it for that reason, do they get to count that as tax-deductible? Likewise, can the host, knowing that they got more money for an item than its real value since it is going toward charity, count all that money as tax deductible?

 

Charity is tax deductible in that it is deducted from your taxable income, meaning before taxes are calculated. So it's not subtracted directly from the taxes, rather it shrinks your taxes by shrinking the number used to figure your taxes.

 

http://nonprofit.about.com/od/fordonors/tp/taxdeductionsforcharity.htm

 

I have no earthly idea on the other counts. I suspect a nervous accountant turning in either of those deductions.

Edited April 19, 2010 by ParanoiA

[Sisyphus]

1)As ParanoiA says, what "tax deductable" means is that it's deducted from your taxable income. So if you earn 100k and donate 10k to charity, you are taxed as if you earned 90k. If that were, say, a 30% tax rate, your taxes would then be 3k less.

 

2)You're talking about a charity auction? Well the host is presumably a charitable organization, so those laws would apply. I'm not sure about the bidder, but my guess is that that wouldn't be tax deductible, since he's not donating the money, he's buying what he bid on. I could easily be wrong, though.

[Mr Skeptic]

Hm, according to point 9 on Paranoia's link, if the charity sells something as a fundraiser, they say what it costs and the difference is considered a tax-deductible donation on the part of the purchaser. So if the host sells something as a fundraiser for a donation, they have to decide the "real price" of the item, and that much is their income (since they sold it) and the difference is the other person's donation (since they overpaid for it). Of course, I suppose nothing is stopping the host from claiming the whole amount as the cost, so as their income and their own tax-deductible donation.

 

Depending on the circumstances, it may be possible to save money overall by doing this, if the auction for charity price is significantly higher than the normal auction price and they do claim it all as income.

 

I don't think they could get away with this for donations, however. I wonder how closely the IRS examines charitable donations.

[jackson33]

On Limbaugh "Savings", for charitable contributions; I haven't the slightest idea, what his personal or his 'BUSINESS', tax structure might look like. I will guess, he files both under the Itemized personal tax system and the Corporate System and both are well into the maximum brackets, approximately 35% net profit or net taxable income. In any event, allowed deductible for charity, as gifts or to whom and how are very complicated and NEVER 100% of the donation.

 

On the "letter"; There was no value, for the item and that value set with the 2.1M$ price received by the Limbaugh Show, received then as income for sale of an asset, 100% net since it had no pre-set value. If you pay 1K$ for an item, turn around selling it for 2K$, you then have a 1K$, net gain and taxable under "gained income". The Business then probably paid 35% on the income, deducting nothing for the cost of that item. Limbaugh, normally pay's any sales tax or incidental cost involved, when he gives away an object, which would also be deductible, under Company expense. The show PROBABLY, also footed the 2.1M$ additional donation, which would be simple charity, but I don't know what portion 'Corporate Tax' allows for charity.

 

Normally, folks with great wealth, have there own "Charitable Trust". They are highly regulated and must redistribute anything placed in that Trust, at some point 5% per year of the value January 1st of the taxable year. They can be set up with items, stocks, bonds cash or any saleable asset.

 

http://www.lectlaw.com/files/tax13.htm

 

 

Skeptic; I had this written for another thread, decided it was too complicated for me to argue, but will post on this thread, as informational, from my understanding.....

[DrDNA]

""Charity Auctions

 

 

Donors who purchase items at a charity auction may claim a charitable contribution deduction for the excess of the purchase price paid for an item over its fair market value. The donor must be able to show, however, that he or she knew that the value of the item was less than the amount paid. For example, a charity may publish a catalog, given to each person who attends an auction, providing a good faith estimate of items that will be available for bidding. Assuming the donor has no reason to doubt the accuracy of the published estimate, if he or she pays more than the published value, the difference between the amount paid and the published value may constitute a charitable contribution deduction.

 

In addition, donors who provide goods for charities to sell at an auction often ask the charity if the donor is entitled to claim a fair market value charitable deduction for a contribution of appreciated property to the charity that will later be sold. Under these circumstances, the law limits a donor's charitable deduction to the donor's tax basis in the contributed property and does not permit the donor to claim a fair market value charitable deduction for the contribution. Specifically, the Treasury Regulations under section 170 provide that if a donor contributes tangible personal property to a charity that is put to an "unrelated use", the donor's contribution is limited to the donor's tax basis in the contributed property. The term "unrelated use" means a use that is unrelated to the charity's exempt purposes or function, or, in the case of a governmental unit, a use of the contributed property for other than exclusively public purposes. The sale of an item is considered unrelated, even if the sale raises money for the charity to use in its programs.""

 

http://www.irs.gov/charities/charitable/article/0,,id=123204,00.html