Proof of Charitable Contributions
Categories: Ethics/Morals
Proof. Like a receipt.
Why would you need or even want this? Because charitable deductions are tax-deductible. So when you pay only $872k in taxes to the IRS instead of $982k, you want to be sure that your charitable deductions are properly receipted.
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Finance: What is a Charitable Contributi...0 Views
Finance Allah shmoop What is a charitable contribution deduction Or
rather how do charitable contributions work as a tax deduction
Or even better how do the rich avoid taxes efficiently
OK admit it Your talented you worked crazy brutal ours
to get what you have millions you have bank and
you work at a bank an investment bank which pays
you five million dollars a year for the pleasure of
your company or rather the pleasure of your big brain
Attracting lucrative investment banking clients Client's willing to pay one
percent commissions to the bank when you sell them to
Google or Amazon or Facebook for five billion dollars You
know companies and clients like that you attract him so
the bank pays you handsomely Well how'd you get here
Well schooling helped you loved attending clown college for bankers
and now you want to donate a million dollars to
it This year it'll buy a ton of power bow
ties and oversized wing tips for the current students there
So how does your charitable contribution to clown college for
bankers then work as faras Your taxes go Well normally
on your last million bucks of earnings you'd be taxed
something like fifty fifty five percent That is on the
last million of earnings from your bank You keep it
and give you take four hundred fifty grand but instead
of keeping it you'll donate it you'll donate that last
million So then what happens to the taxes on that
last mill Well they go away It's essentially as if
you never earned that million dollars You get taxed on
earnings of four million box instead of five And mathematically
you've made the decision that wealth instead of personally keeping
four hundred fifty grand after taxes with five fifty going
to the federal and state man taxes well you're going
to donate a million to clown college for bankers instead
So you donate a million instead of keeping four hundred
fifty k Easy So then how does it work when
you're not just donating cash like you're the founder of
whatever dot com and you have three hundred million dollars
in appreciated stock you quote need unquote Only a fraction
of that amount to live on like at the most
A million bucks a year covers every material thing you
ever wanted and you find it just to ghost toe
overtly spend money in our oh so stressed out society
You were born the daughter of a farmer in a
school teacher and her cursed with self awareness such that
you don't buy two homes next to each other in
the expensive part of town Just a shove it in
people's faces that you can So you have appreciated stock
and you want to donate a million dollarsworth Well your
stock today trades for about a hundred bucks a share
and your cost basis on it is virtually nothing You're
the founder So let's say it costs you up any
a share to create that common Well it's a Tuesday
and the stock is bopping between ninety nine eighty seven
and one Oh one twenty one and you're going to
donate ten thousand shares Well howto those shares then get
priced well on the day of the donation Being legally
binding the broker's take a volume weighted average price called
a V wop And conveniently the price on this Tuesday
was exactly one hundred dollars and one cent So that's
the price at which the shares were donated and you
have a game then subtracting that any that it cost
you of exactly one hundred dollars for the pleasure of
making the donation Have you sold the shares and just
kept the proceeds personally Well you'd have shown a gain
of exactly one hundred dollars on which you'd be taxed
at long term gain race So like with Obama care
federal and state taxes in a blue state of about
third you tax about thirty five percent ish so that
per share you'd pay thirty five dollars in facts and
keep sixty five So in this case appreciated stock is
a bit less favorable from attacks perspective to donate versus
just donating cash that was delivered to you via your
paycheck or in some other ordinary income taxiway like bond
interest for moneys you loaned Well in the case of
the cash donation you would have kept four hundred fifty
grand after tax but in the case of a stock
donation you would've kept six hundred fifty grand So what
if you weren't the founder like you had just bought
the stock and say thirty dollars a share Waited a
few years and then decided you wanted to donate it
at one hundred bucks a share Well you'd show a
taxable gain of seventy dollars again at the one third
ish rate called thirty five percent So then your choices
Just donate a million dollars in appreciated stock never paying
tax on it or sell it and pay a thirty
five percent tax on the gain of seventy dollars or
attacks of about two hundred fifty grand keeping in this
case seven hundred fifty grand The less of a game
you have the less of attacks you are sheltering But
what if things go the other way like you paid
one hundred dollars for the stock and it then went
down like a lot toe forty bucks a share I've
been there done that Should you then give it away
No no and a half Because here the loss on
that investment is actually valuable to you on your own
From attacks perspective you may want to sell the stock
And if you do while you get to keep a
sixty dollars share loss which you can apply to offset
gains in another stock in which you made money like
you're sheltering your gains by realizing those losses Well in
this case giving it away doesn't help you with taxes
At all Give away a different stock where you've made
money and enjoy the ride Will this formula presumes that
you've held the stock an entire year In most cases
founders of companies have run them for years and years
or even decades before donating the charities But every now
and then someone visors stock for it Bucks a share
tohave it ten months later be trading it fifty and
the owner feels like it's on the precipice of disaster
and wants to just unload it fast So that would
get ordinary income treatment And they generally would unload it
real quickly on their favorite charity rather than pay all
that tax So yeah time to put that solid clown 00:05:44.267 --> [endTime] college training to use