[forwarded post from non-member]
From: Mike Godwin mgodwin@wikimedia.org Date: October 24, 2007 4:36:20 AM EDT To: foundation-l@lists.wikimedia.org Subject: The question of tax-deductible donations
My own research today seems to confirm the view that, while in some nations a contribution to Wikimedia is tax-deductible, in others it is not. In effect, it seems there is no general answer, and the specific answers for each country can be maddeningly complex -- complex enough that we could spend a whole lot of time trying to dig up the answer for every nation where a donor might reside. I'll see if I can find a resource that makes it easier, but I'm not hopeful about that.
So ... I'd like to de-emphasize tax-deductibility to the extent possible, if we can do it. We so know that Americans who give can get a break on their American taxes. We also know that some donors in other nations can do something similar, sometimes, to some extent. Beyond that, we don't have a general answer yet, and there may not be one.
The point I think Brian McNeil has made is a good one -- only a third of Americans itemize their deductions, and we have no reason to believe the demographics of our American donors are different from those of Americans generally. (That's the null hypothesis.) What this suggests is, in the absence of more data about donors and deductibility, we should stress altruism more than the tax deductions. Yes, we can say "in some nations, including in the United States, you may be able to obtain a tax deduction for your donation." Or something similar. But I don't want to take the risk of overpromising on the tax-deduction question. We'd like people to give to Wikimedia because it's the right thing to do and not because they necessarily get a reduction in their taxes.
I'm sorry not to have a neat, general answer to what turns out to be complex question, but I'm still researching it.
--Mike Godwin General Counsel Wikimedia Foundation
On 10/24/07, Michael Bimmler mbimmler@gmail.com wrote:
[forwarded post from non-member]
From: Mike Godwin mgodwin@wikimedia.org Date: October 24, 2007 4:36:20 AM EDT To: foundation-l@lists.wikimedia.org Subject: The question of tax-deductible donations The point I think Brian McNeil has made is a good one -- only a third of Americans itemize their deductions, and we have no reason to believe the demographics of our American donors are different from those of Americans generally. (That's the null hypothesis.) What this suggests is, in the absence of more data about donors and deductibility, we should stress altruism more than the tax deductions. Yes, we can say "in some nations, including in the United States, you may be able to obtain a tax deduction for your donation." Or something similar. But I don't want to take the risk of overpromising on the tax-deduction question. We'd like people to give to Wikimedia because it's the right thing to do and not because they necessarily get a reduction in their taxes.
There's a different angle that this can be looked at however. It's true that reducing your tax burden in itself isn't a good incentive to give to charity. After all, your actually disposable income is actually going to be less than if you didn't give to charity at all.
Rather, what we should stress more is that tax deductibility allows individuals to make larger contributions than they ordinarily could or would. How much more willing do you think Jane Taxpayer would be to donate $100 net off her own income to the foundation if she knew that the benefit to Wikimedia could actually be $125 without any additional cost to her (assuming an 20% average income tax rate)?
This incentive of course gets stronger the higher the individual tax rate is. The top tax rate in the United States in 2006 was 35% but you had to make at least $336,551 to fall into that bracket. In contrast, the top tax rate in Germany in 2006 was 42% but you only had to make €52,152 (rougly $73,000) to be affected by that. What that means just in this little comparison is that the actual average tax benefit in Germany is much higher than it would be in the United States. Presumably, the same situation is true for other countries.
Also, there's a logical fallacy here by stating that since only one third of Americans/donors itemize we don't need to emphasize the deductibility. The point missing here is that not all donors are equal because they do give different amounts. And if there is a positive relationship between disposable/taxable income and donation amounts, the IRS statistics show that those donors who give more are also more likely to itemize their deductions. In other words: those people who give to the foundation the most would be most attracted by the information about deductability of taxes. If we look at this issue from a pure bottom line perspective, it makes sense that we cater to those donors to the extent possible.
In essence, what I'm trying to get at is that we shouldn't fall into the trap of assuming that people behave the same way in other countries as they do in the US. Specifically in this case I would rather favor putting more of an emphasis on the tax deductibility in our materials and especially spend some time investigating the local issues for those countries that are significant donation sources. One problem, for example, under German law one cannot deduct charitable contributions to foreign charities. That quite practically means that Germans who give directly to the foundation cannot deduct these donations on their tax return so the incentive mentioned above doesn't exist. I would be surprised if there are not similar issues in other countries, which we should be aware of.
Sebastian
On 10/24/07, Sebastian Moleski sebmol@gmail.com wrote:
This incentive of course gets stronger the higher the individual tax rate is. The top tax rate in the United States in 2006 was 35% but you had to make at least $336,551 to fall into that bracket
*nit: Thats also the number for the whole household income of married couple filing jointly, so it's arguable to half that number.
Since I'm replying...
"tax deductable" is still attractive to people even if they don't use it. It's a lot like the mail in rebate coupons which are all the rage in the US.
Also, pointing out that we are "tax deductable, at least in some places" is another way to emphasize that "WE ARE A CHARITY AND DESERVE YOUR SUPPORT" without repeating the same statement over and over again. ;)
On 10/24/07, Gregory Maxwell gmaxwell@gmail.com wrote:
On 10/24/07, Sebastian Moleski sebmol@gmail.com wrote:
This incentive of course gets stronger the higher the individual tax rate is. The top tax rate in the United States in 2006 was 35% but you had to make at least $336,551 to fall into that bracket
*nit: Thats also the number for the whole household income of married couple filing jointly, so it's arguable to half that number.
*second nit. Those in the 35% backet are most likely to have hit the 3% phaseout rule for their itemized deductions, in which case they won't get the full 35% deduction.
On 10/24/07, Anthony wikimail@inbox.org wrote:
On 10/24/07, Gregory Maxwell gmaxwell@gmail.com wrote:
On 10/24/07, Sebastian Moleski sebmol@gmail.com wrote:
This incentive of course gets stronger the higher the individual tax rate is. The top tax rate in the United States in 2006 was 35% but you had to make at least $336,551 to fall into that bracket
*nit: Thats also the number for the whole household income of married couple filing jointly, so it's arguable to half that number.
*second nit. Those in the 35% backet are most likely to have hit the 3% phaseout rule for their itemized deductions, in which case they won't get the full 35% deduction.
Nevermind. Everyone in the 35% backet is subject to the 3% phaseout rule, so you can *never* get 35% back for a charitable contribution (*). The maximum benefit from a charitable deduction would probably come from those paying AMT, who'd possibly get 26 or 28%, but AMT has its own phaseout rules, so I'm not completely sure about that.
See, charitable deductions of WMF donations are even complicated in the United States. "some donors...can [deduct something], sometimes, to some extent".
(*) I think. Maybe there's some credit somewhere that you'd wind up getting a double-benefit from or something. I doubt it, but US tax law is so screwed up I'm not willing to make such a broad statement on a public forum.
Anthony wrote:
Maybe there's some credit somewhere that you'd wind up getting a double-benefit from or something. I doubt it, but US tax law is so screwed up I'm not willing to make such a broad statement on a public forum.
It's written by the same people who wrote the copyright law. What do you expect? :-)
Ec
On 10/24/07, Anthony wikimail@inbox.org wrote:
*nit: Thats also the number for the whole household income of married couple filing jointly, so it's arguable to half that number.
*second nit. Those in the 35% backet are most likely to have hit the 3% phaseout rule for their itemized deductions, in which case they won't get the full 35% deduction.
AMT AMT AMT
On 10/24/07, Gregory Maxwell gmaxwell@gmail.com wrote:
On 10/24/07, Anthony wikimail@inbox.org wrote:
*nit: Thats also the number for the whole household income of married couple filing jointly, so it's arguable to half that number.
*second nit. Those in the 35% backet are most likely to have hit the 3% phaseout rule for their itemized deductions, in which case they won't get the full 35% deduction.
AMT AMT AMT
AMT only runs 26% or 28%
Gregory Maxwell wrote:
On 10/24/07, Sebastian Moleski sebmol@gmail.com wrote:
This incentive of course gets stronger the higher the individual tax rate is. The top tax rate in the United States in 2006 was 35% but you had to make at least $336,551 to fall into that bracket
*nit: Thats also the number for the whole household income of married couple filing jointly, so it's arguable to half that number.
The number is also used for single filing. It's only halved for married filing separately. The other thing that needs to be factored in at that level is the clawback on deductions and exemptions.
Ec
On 10/24/07, Ray Saintonge saintonge@telus.net wrote:
The number is also used for single filing. It's only halved for married filing separately. The other thing that needs to be factored in at that level is the clawback on deductions and exemptions.
If you make the (usually poor) assumption of two married people making equal income they each need to make only half of that... i.e. income per person needs to only be half that number to cross that particular threshold. ;)
Michael Bimmler wrote:
[forwarded post from non-member]
From: Mike Godwin mgodwin@wikimedia.org
My own research today seems to confirm the view that, while in some nations a contribution to Wikimedia is tax-deductible, in others it is not. In effect, it seems there is no general answer, and the specific answers for each country can be maddeningly complex -- complex enough that we could spend a whole lot of time trying to dig up the answer for every nation where a donor might reside. I'll see if I can find a resource that makes it easier, but I'm not hopeful about that.
So ... I'd like to de-emphasize tax-deductibility to the extent possible, if we can do it. We so know that Americans who give can get a break on their American taxes. We also know that some donors in other nations can do something similar, sometimes, to some extent. Beyond that, we don't have a general answer yet, and there may not be one.
The point I think Brian McNeil has made is a good one -- only a third of Americans itemize their deductions, and we have no reason to believe the demographics of our American donors are different from those of Americans generally. (That's the null hypothesis.) What this suggests is, in the absence of more data about donors and deductibility, we should stress altruism more than the tax deductions. Yes, we can say "in some nations, including in the United States, you may be able to obtain a tax deduction for your donation." Or something similar. But I don't want to take the risk of overpromising on the tax-deduction question. We'd like people to give to Wikimedia because it's the right thing to do and not because they necessarily get a reduction in their taxes.
I'm sorry not to have a neat, general answer to what turns out to be complex question, but I'm still researching it.
Wasn't it Anthony that first raised the issue of itemized deductions?
The other thing about US deductibility is that one should not assume that federal deductibility always implies deductibility on state returns, or city returns (where applicable) and vice versa.
I would disagree on the demographics of American donors. The one single thing that triggers itemized deductions more than anything else is home mortgage interest. Given that we have a large proportion of students involved in Wikipedia, and they have not usually gotten to the point of buying a home, it would be reasonable to suggest that they are worse off than the statistically average American.
I do agree with the general tone of Mike's message.
Ec
On 10/24/07, Ray Saintonge saintonge@telus.net wrote:
Wasn't it Anthony that first raised the issue of itemized deductions?
Yes, it was. Other than that, I think Mike Godwin was right on. Deductibility outside the United States is incredibly complicated, and saying something other than "some donors in other nations can do something similar, sometimes, to some extent" is probably a bad idea.
Deductibility inside the US can even be complicated. For the people who really care about it, they can find out the details from their tax advisor (or through self-study, if they're feeling masochistic).
Hoi, A few years back I researched this issue for the Netherlands and found that it is possible to get tax deductibility for organisations that are outside of the Netherlands. It requires quality bookkeeping. It helps when there is an organisation that can represent said organisation and is local to the Netherlands. I also understood that it does not happen frequently; it is often denied.
My understanding is that this should be possible in more EU countries. Do not ask me to find this out.. It is rather specialised.
The tax office that deals with these issues it the one in Heerlen. The tax office for tax deductibility for Dutch organisations is in Tilburg.
Thanks, GerardM
On 10/24/07, Michael Bimmler < mbimmler@gmail.com> wrote:
[forwarded post from non-member]
From: Mike Godwin < mgodwin@wikimedia.org> Date: October 24, 2007 4:36:20 AM EDT To: foundation-l@lists.wikimedia.org Subject: The question of tax-deductible donations
My own research today seems to confirm the view that, while in some nations a contribution to Wikimedia is tax-deductible, in others it is not. In effect, it seems there is no general answer, and the specific answers for each country can be maddeningly complex -- complex enough that we could spend a whole lot of time trying to dig up the answer for every nation where a donor might reside. I'll see if I can find a resource that makes it easier, but I'm not hopeful about that.
So ... I'd like to de-emphasize tax-deductibility to the extent possible, if we can do it. We so know that Americans who give can get a break on their American taxes. We also know that some donors in other nations can do something similar, sometimes, to some extent. Beyond that, we don't have a general answer yet, and there may not be one.
The point I think Brian McNeil has made is a good one -- only a third of Americans itemize their deductions, and we have no reason to believe the demographics of our American donors are different from those of Americans generally. (That's the null hypothesis.) What this suggests is, in the absence of more data about donors and deductibility, we should stress altruism more than the tax deductions. Yes, we can say "in some nations, including in the United States, you may be able to obtain a tax deduction for your donation." Or something similar. But I don't want to take the risk of overpromising on the tax-deduction question. We'd like people to give to Wikimedia because it's the right thing to do and not because they necessarily get a reduction in their taxes.
I'm sorry not to have a neat, general answer to what turns out to be complex question, but I'm still researching it.
--Mike Godwin General Counsel Wikimedia Foundation
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And oh yeah...
On 10/24/07, Michael Bimmler mbimmler@gmail.com wrote:
we should stress altruism more than the tax deductions.
Just don't call it altruism. Jimmy Wales advises against using that term. :)
http://sl4.org/archive/0105/1415.html, and surely many others.
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