I don’t think anyone has suggested there was malfeasance but that with the #metoo and Time’s Up movements, the situation (of the wage discrepancy) simply looked bad.
Your link assumes that the charitable deduction is coming out of existing income, the standard case. In that case the gift costs $100, but the tax benefit gets you $35 versus not giving the gift, so the final cost is $65.
But in the case in question Wahlberg gave supplemental income. You can say that he only really donated a million since the feds would have taken $500 K (rounded for convenience) if he had kept the money. But the end result is that his tax bill is the same as if he didn’t get the money at all.
Cite? Cite withstanding, I was replying to this comment by Orwell:
You are mistaken. When you donate to charity, you deduct that amount from your gross income. It’s the same as not making it at all. There is no difference, wealth- or tax-wise.
Supplemental income is also taxed, although at a lower rate. Is there an IRS policy that once a certain amount of supplemental income is made, anything less donated to charity is non-deductible?
Ms. Williams should have paid attention to the title of the movie she was making.
Assuming that Mark Wahlberg received the $1.5 million in income last year and donates all the money this year, he is likely poorer than he would have been if he had never received the money. I don’t see any way that he comes out ahead.
- Time value of money - If he earned the money last year, he will owe taxes on it payable on 4/15. Then, he will get a deduction next year, so he has essentially given the government a loan of money interest free for one year.
- Deduction limits on charitable contributions - I forget how the details work but some charitable deductions are subject to limitations of either 50% or 30% of your income. There’s a greater than zero chance that he can’t even deduct the whole thing next year.
Let me try again.
A) You make $100,000 a year and pay $20,000 in taxes. You take an extra assignment or a part-time job that pays you $10,000. You have to claim income of $110,000 and pay taxes on the extra $10,000. Assume 25% taxes on the marginal income, so you now pay $22,500 in taxes and net $7,500 extra money.
B) You donate $10,000 to charity, effectively giving up the extra $10,000 you earned. You claim income of $110,000, with a $10,000 deduction to charity, reducing your taxable income to $100,000. You pay $20,000 in taxes on the $100,000, same as if you didn’t make the extra money.
There is no mysterious tax benefit or loophole when you donate money to charity. You simply are allowed to deduct that money, and end up as if you never earned it. It is a little different when you donate goods, as you get to claim a deduction for the value of the items you donate. Then, it can be argued that people in higher tax brackets get more benefit. Even that is a questionable conclusion, as you have to assume that they paid more income on the money they used to buy the goods they later donate.
In scenario A you end up with $87,500.
In scenario B you end up with $80,000.
So in scenario B, a $10,000 donation cost one $7,500. How is this different than what I said. Perhaps you misunderstood me:
Joey said “In this case, he has nothing” and “if you can’t have 10 million dollars you’d rather have 0 than 7 million?”
Read my response to him. It doesn’t say one makes more money or breaks even by donating, it says that donating isn’t the same as never having made the money as one gets the financial benefit of a deducting.
I think we are miscommunicating. Or I didn’t effectively spell out what I was getting at.
Scenario A: You make $100,000 and pay $20,000 taxes, you keep $80,000.
Scenario B: You make $110,000, working an extra job to make the extra $10,000. You donate $10,000 to charity, reducing your taxable income back down to $100,000. You pay $20,000 in taxes, keeping $80,000.
There is no benefit in making more money and donating the extra to charity. It’s the same as not accepting the extra money.
If you donate money you win in a lottery, it’s the same as not winning. There is no “huge tax break” that lets you donate money and still somehow keep it.
Did you re-read what I asked you to and my further comments on it?
I DID NOT say or imply that you donate money “and still somehow keep it.”
I made a mistake calculating in your two scenarios.
In scenario A, you said “Assume 25% taxes on the marginal income.”
By picking that exact number, differing from the 20% on the rest of the income, you were able to make it match scenario B exactly.
Let’s not do that. Keeping the same 20% across the board, in scenario A, after taxes, one ends up with $88,000.
In scenario B, after taxes and donation, one ends up with $80,000.
A $10,000 donation effectively costs $8000.
Do you have evidence that Wahlberg’s income on re-shooting a movie is taxed differently than when he regularly shoots a movie? If so, evidence that it works out so perfectly as it did in your two scenarios?
The problem is there are at least three scenarios, not two.
Scenario 1 You earn $100K, you pay $20K in taxes, you keep 80K
**Scenario 2 **You take on that extra job for $10K and earn a total of $110K. You pay $22K in taxes and keep $88K
Scenario 3 You take on that extra job for $10K and earn a total of $110K. You donate that $10K and pay $20K in taxes on the 100K. You keep the same $80 K as in scenario 1.
Yes, the $10K donation effectively cost you only $8K - but you also keep the same amount of money as if you had never earned the $10K to begin with.
Then there’s **Scenario 4 **, where earning that extra 10K causes your adjusted gross income to pass a threshold that makes you subject to the AMT, or causes you to be ineligible for some credits/deductions which means that even though you donate that $10K , you actually pay more in taxes than if you had never earned it.
He will not have $35 more than he would have had if he had not earned it at all. He has $35 more than he would have if he had done something else with that $100. If he earned that $100 and spent it on a bottle of wine, or put it into the bank, he would have paid $35 in taxes on it. Since he donated it , he doesn’t have to pay the $35 in taxes.
Buying a bottle of wine or something else taxed highly is not the only thing one can do with $100. One can put it towards something that is taxed with regular sales tax, or no sales tax at all depending on what is purchased and what state one is in. Or one can invest it- sometimes even tax free.
My point was not about the taxes on the bottle of wine , it was about the $35 of income tax in the example - which is why I also said " or put it into the bank". He wouldn’t have $35 more than if he had never earned the $100- he would have $35 more than if he had used the $100 in any way that wasn’t tax-deductible.