(Na) any accountants out there?

saracelica

saracelica

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saracelica
Let's say you're in the 30% tax bracket you bring home 75k every year. By some luck you win 10k in a contest. You don't need it so you donate it to a charity. Does the taxes you pay and the tax write off equal the same or do you come out aheas
 
saracelica said:
Let's say you're in the 30% tax bracket you bring home 75k every year. By some luck you win 10k in a contest. You don't need it so you donate it to a charity. Does the taxes you pay and the tax write off equal the same or do you come out aheas
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You never come out ahead. Should wash. But I thought there was a limit on what could be written off donation wise.
 
In most cases you will still be ahead by keeping it but it isn't a simple question, and it depends on how close you are to the next marginal tax bracket, and how much you win. You just have to do the math and work out both scenarios.

If you're right on the edge of the bracket, and say you bring in an few hundred (say a thousand extra dollars), you could well end up losing money to taxes.
 
Sac Arrow said:
In most cases you will still be ahead by keeping it but it isn't a simple question, and it depends on how close you are to the next marginal tax bracket, and how much you win. You just have to do the math and work out both scenarios.

If you're right on the edge of the bracket, and say you bring in an few hundred (say a thousand extra dollars), you could well end up losing money to taxes.
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Not really, because it is a "marginal" bracket.
If you are in the 20% bracket, but you are $1 away from the 28% bracket, then you win $50,000, the new 28% is only calculated on the marginal amount (or in this case, $49,999) with the first dollar being taxed at the 20% marginal rate.

So you will always be better off taking the cash and paying the tax. It is just that the higher your marginal rate, the less of the winnings you keep.

I think.
 
The "marginal" explanation is correct.
 
Don't forget that the winnings increase your AGI even if you give them away, and the deductability of and eligibility for many benefits is based on AGI. So there are many ways that the prize can increase your taxes even if you give it away. A better plan would be to put it in a retirement account if you aren't already maxed out.
 
Gahhhhh. That's why I don't post James. Had to complain about part of it didn't you.
 
Sara, i used to keep the books for our church. Had this happen more often than many folks might think. If you truly dont want it to touch your taxes in any way, have the casino/bingo parlor/etc donate it to your preferred charity but NOT in your name, else it's still yours.
 
JHW said:
Sara, i used to keep the books for our church. Had this happen more often than many folks might think. If you truly dont want it to touch your taxes in any way, have the casino/bingo parlor/etc donate it to your preferred charity but NOT in your name, else it's still yours.
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Just for my education, what's the advantage in that?
If she wins $50k and donates $50k, isn't that a wash with no additional taxes due? Is there a limit to the destructibility of a charitable deduction?
 
JOhnH said:
Just for my education, what's the advantage in that?
If she wins $50k and donates $50k, isn't that a wash with no additional taxes due? Is there a limit to the destructibility of a charitable deduction?
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beats me, I'm no accountant. But the people who didn't want to show any income, that's what they did
 
JHW said:
beats me, I'm no accountant. But the people who didn't want to show any income, that's what they did
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Well, I could see how someone going through a divorce might not want their spouse to collect any of it.
 
You can pm me for my phone number. I don't want to post publically.
 
I don't have this situation it was on tv. I was just thinking about it. Seemed like it'd be a wash or at least win at doing it. So I figured I'd ask you fine folks. Thanks for the discussion.
 
saracelica said:
I don't have this situation it was on tv. I was just thinking about it. Seemed like it'd be a wash or at least win at doing it. So I figured I'd ask you fine folks. Thanks for the discussion.
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It depends on how you define the word "win".

If you keep the money and pay the tax, you get to keep the difference between the winnings and the tax. And since we don't have anywhere near a 100% bracket, you will always come out ahead financially by keeping it.

If the warm fuzzy feeling you get by donating a chunk of money to your favorite charity constitutes a "win" for you, then go ahead and give it away.

The big problem some "winners" get into is that they win merchandise that they don't really need and then wind up having to pay tax on the retail value of something they don't really want.

If you win a $200,000 motor home, then have to pay $70,00 tax and you don't have $70k, you have a (solvable) problem. Sell the motor home and pay the tax with the proceeds. But some people have just ignored paying the tax and got in trouble for tax evasion later.
 
Sac Arrow said:
In most cases you will still be ahead by keeping it but it isn't a simple question, and it depends on how close you are to the next marginal tax bracket, and how much you win. You just have to do the math and work out both scenarios.

If you're right on the edge of the bracket, and say you bring in an few hundred (say a thousand extra dollars), you could well end up losing money to taxes.
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Eh?? It's a marginal rate. You will never "lose" money from an incremental dollar.
 
saracelica said:
I don't have this situation it was on tv. I was just thinking about it. Seemed like it'd be a wash or at least win at doing it. So I figured I'd ask you fine folks. Thanks for the discussion.
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It would be a wash. Charitable donations are deductible against income. So if your additional income (adjusted gross income) is $10K more, you then subtract your additional charitable donations of $10K = $0 increase/decrease in taxable income.
 
frcabot said:
It would be a wash. Charitable donations are deductible against income. So if your additional income (adjusted gross income) is $10K more, you then subtract your additional charitable donations of $10K = $0 increase/decrease in taxable income.
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Maybe, maybe not.

There are plenty of situations that would make this not true.

If you have an income level such that you are subject to the phase-out of itemized deductions your statement would not be true.

If you do not itemize your deductions for other various reasons, your statement would not be true.

If you are separated and file married filing separate, your statement *might* not be true.

Nothing is that simple. If you have an accountant, you should check with them before deciding this. If you have turbotax, well... ask the box.:lol:
 
retailguy said:
Maybe, maybe not.

There are plenty of situations that would make this not true.

If you have an income level such that you are subject to the phase-out of itemized deductions your statement would not be true.

If you do not itemize your deductions for other various reasons, your statement would not be true.

If you are separated and file married filing separate, your statement *might* not be true.

Nothing is that simple. If you have an accountant, you should check with them before deciding this. If you have turbotax, well... ask the box.:lol:
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Ok, mostly good points. I should say, it would be a wash for the vast majority of taxpayers. It would be a wash for OP who states his income is $75K (no phase-out at his income level, etc.). Charitable contributions may be deducted so long as they constitute less than 30%-50% of AGI (depending on type of organization). This would be true for OP even at the lower limit. Even if he couldn't deduct the entire amount, he would still probably be able to carry forward for the next 5 years, but I doubt he wouldn't be able to deduct in the first place.

The standard deduction for single is only $6,200 and $12,400 for married, so if you're single there's no reason you wouldn't itemize and if you're married it's hard to believe you couldn't come up with an additional $2,400 of deductions, especially if you have the money available to be making $10K donations -- your state taxes alone would probably be well over $2,400, let alone mortgage interest, etc.

Here: http://www.irs.gov/uac/Can-I-Deduct-My-Charitable-Contributions?

Also, if you are legally separated you are considered single, even if not divorced. What would be the circumstances in which you wouldn't be able to claim the charitable deduction if married filing separately (assuming within the AGI limits, etc.)?
 
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frcabot said:
Ok, mostly good points. I should say, it would be a wash for the vast majority of taxpayers. It would be a wash for OP who states his income is $75K (no phase-out at his income level, etc.). Charitable contributions may be deducted so long as they constitute less than 30%-50% of AGI (depending on type of organization). This would be true for OP even at the lower limit. Even if he couldn't deduct the entire amount, he would still probably be able to carry forward for the next 5 years, but I doubt he wouldn't be able to deduct in the first place.

The standard deduction for single is only $6,200 and $12,400 for married, so if you're single there's no reason you wouldn't itemize and if you're married it's hard to believe you couldn't come up with an additional $2,400 of deductions, especially if you have the money available to be making $10K donations -- your state taxes alone would probably be well over $2,400, let alone mortgage interest, etc.

Here: http://www.irs.gov/uac/Can-I-Deduct-My-Charitable-Contributions?

Also, if you are legally separated you are considered single, even if not divorced. What would be the circumstances in which you wouldn't be able to claim the charitable deduction if married filing separately (assuming within the AGI limits, etc.)?
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Ok, this is why no one else responded.

When you get to these types of questions, advice is very personal and limited. It depends on your exact situation to be accurate.

I responded because you posted "general advice" that is correct in some circumstances but not all.

Quite frankly, those that "typically" give away $10K such as the OP requested will "usually" have problems with the tax aspect of it. Most people in your "typical" circumstances would not be able to give away the 10k.

So, responding to your points, I was not clear. You took my "separated, married filing separately" comment to be one situation, but it's actually multiple situations.

If you file married filing separately, your spouse must do the same thing that you do with regard to itemized deductions. In other words, if you file using the standard deduction, so must your spouse. One can not file itemized and the other file standard. That option is not open. IRS views that as "doubling deductions" since no documentation can be required for the standard deduction.

Finally, there is no requirement to itemize if you qualify. There are circumstances, and more commonly people who make the choice to take the standard deduction even though they qualify for a better deduction by using itemized.

You cannot give "general tax advice" and be accurate all the time. Hence my "ask the box" comment...
 
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