The near-exception is donation of significantly appreciated assets. I think you virtually always still lose money, but it can get close.
You can donate up to 30% of your annual income as appreciated assets valued at market price. If I have that option in a relatively high-tax state like CA, then the decision can be between me keeping $1 or the charity getting >$6.
Suppose I pay $1 for an asset, it goes up to $100, then I donate it. I’d avoid paying 20% (federal) + 12.3% (state) + 3.8% (obamacare) = $36 in taxes on the $99 of capital gains. On top of that, I’d get to take a tax deduction of $100 which will save me about 37% (federal)+ 12.3% = $49 on my tax bill. So overall I’m saving $85 in taxes for every $100 donated.
(Not sure if those calculations are wrong or if I’m missing something.)
I think that checks out, though it depends on being in a high-tax state, when your marginal income tax is in the top bracket − 37% is for income above a half million dollars. You need enough income to actually get the large tax deduction in the year you make the donation—startup founders and inheritors of appreciated assets could often get a tax credit for more than their normal income, if they donate it all at once. For lower income people, it also takes a large donation to make it better to itemize than to take the standard deduction. And this only occurs for relatively wealthy folks with high incomes. (Which probably describes you at this point, so congrats!)
But overall, I’d still say it’s not “quite common.”
The near-exception is donation of significantly appreciated assets. I think you virtually always still lose money, but it can get close.
You can donate up to 30% of your annual income as appreciated assets valued at market price. If I have that option in a relatively high-tax state like CA, then the decision can be between me keeping $1 or the charity getting >$6.
Suppose I pay $1 for an asset, it goes up to $100, then I donate it. I’d avoid paying 20% (federal) + 12.3% (state) + 3.8% (obamacare) = $36 in taxes on the $99 of capital gains. On top of that, I’d get to take a tax deduction of $100 which will save me about 37% (federal)+ 12.3% = $49 on my tax bill. So overall I’m saving $85 in taxes for every $100 donated.
(Not sure if those calculations are wrong or if I’m missing something.)
I think that checks out, though it depends on being in a high-tax state, when your marginal income tax is in the top bracket − 37% is for income above a half million dollars. You need enough income to actually get the large tax deduction in the year you make the donation—startup founders and inheritors of appreciated assets could often get a tax credit for more than their normal income, if they donate it all at once. For lower income people, it also takes a large donation to make it better to itemize than to take the standard deduction. And this only occurs for relatively wealthy folks with high incomes. (Which probably describes you at this point, so congrats!)
But overall, I’d still say it’s not “quite common.”