The giver has to pay gift tax, but depending on the situation you may prefer paying gift tax to...
The majority of people reading this forum post probably don’t have to pay gift tax at all! Gift tax has two exclusions:
Annual tax exclusion: For any {giver, receiver} pair, the first $17,000 is excluded from taxes. You do not need to report gifts on your annual taxes unless you give more than $17,000 to any individual.
Lifetime exclusion: Givers are exempt from a gift tax for the first $13M of gifts they make, even above the annual tax exclusion. This means that while you need to report, you don’t actually start paying taxes until you give more than $13M in total in gifts to people.
The two exclusions are cumulative. This means that only gifts above $17,000 given to any individual in any single year counts towards your lifetime exclusion limit, and only once that is above $13M would you need to start actually paying the gift tax.
If I understand correctly, the gift tax policy was primarily designed for closing loopholes where wealthy people tried to avoid inheritance/estate taxes via giving gifts. So for people who aren’t very wealthy (which is the majority of EAs who aren’t earning-to-give[1]), I don’t expect the gift tax to ever be financially relevant to them.
(Not a tax lawyer or an accountant. This is not legal advice. Also speaking from an US context only, of course).
...to overhead being taken out of the donation to run the granting program
I want to flag that overheads for granting programs in EA are often very low, in relative terms. For example, EA Funds spent roughly 700k last year in overhead[1] and distributed >30M, for an overhead ratio of <2.5% [2](though I expect it to increase substantially this year and in upcoming years).
In generally I’d expect overheads in EA granting programs to be too low rather than too high, in the sense that the world will be better off if a higher percentage of resources in EA granting programs can productively be allocated to grantmaking, operations, monitoring and evaluation, etc.
Technically the money for overhead is raised from external private donors rather than from public donations due to past commitments made from EA Funds. But of course money is fungible, and going forwards I’d like to drop this commitment for LTFF and EAIF.
Though the Global Health and Development fund incurred ~0 overhead, so we might want to exclude that. But even if we’re just looking at EA Infrastructure Fund and the Long-Term Future Fund, and assume 100% of overhead costs goes to those two funds, the overhead ratio still ends up being <4%.
I’m confused about the lifetime exclusion and so I didn’t want to advise anyone that they might not have to pay on gifts of over $17,000 in a year :/ I would love to get an answer from a tax lawyer or accountant on this!
The majority of people reading this forum post probably don’t have to pay gift tax at all! Gift tax has two exclusions:
Annual tax exclusion: For any {giver, receiver} pair, the first $17,000 is excluded from taxes. You do not need to report gifts on your annual taxes unless you give more than $17,000 to any individual.
Lifetime exclusion: Givers are exempt from a gift tax for the first $13M of gifts they make, even above the annual tax exclusion. This means that while you need to report, you don’t actually start paying taxes until you give more than $13M in total in gifts to people.
The two exclusions are cumulative. This means that only gifts above $17,000 given to any individual in any single year counts towards your lifetime exclusion limit, and only once that is above $13M would you need to start actually paying the gift tax.
If I understand correctly, the gift tax policy was primarily designed for closing loopholes where wealthy people tried to avoid inheritance/estate taxes via giving gifts. So for people who aren’t very wealthy (which is the majority of EAs who aren’t earning-to-give[1]), I don’t expect the gift tax to ever be financially relevant to them.
(Not a tax lawyer or an accountant. This is not legal advice. Also speaking from an US context only, of course).
it’s usually more tax-efficient for earning-to-givers to donate money to 501c3s, as you get money back in a tax return.
I want to flag that overheads for granting programs in EA are often very low, in relative terms. For example, EA Funds spent roughly 700k last year in overhead[1] and distributed >30M, for an overhead ratio of <2.5% [2](though I expect it to increase substantially this year and in upcoming years).
In generally I’d expect overheads in EA granting programs to be too low rather than too high, in the sense that the world will be better off if a higher percentage of resources in EA granting programs can productively be allocated to grantmaking, operations, monitoring and evaluation, etc.
Technically the money for overhead is raised from external private donors rather than from public donations due to past commitments made from EA Funds. But of course money is fungible, and going forwards I’d like to drop this commitment for LTFF and EAIF.
Though the Global Health and Development fund incurred ~0 overhead, so we might want to exclude that. But even if we’re just looking at EA Infrastructure Fund and the Long-Term Future Fund, and assume 100% of overhead costs goes to those two funds, the overhead ratio still ends up being <4%.
I’m confused about the lifetime exclusion and so I didn’t want to advise anyone that they might not have to pay on gifts of over $17,000 in a year :/ I would love to get an answer from a tax lawyer or accountant on this!