/r/accounting has a thread about this.
https://www.reddit.com/r/Accounting/comments/zlunm5/tax_ques...
It is nothingburger... unless the charity is shady.
Musk’s $5.7B Mystery Gift Went to His Own Charity
201–210 of 343 posts
Re: Musk’s $5.7B Mystery Gift Went to His Own Charity
#202Regular mortals maximize their 401k contributions, use Backdoor Roth IRA, FSA, optimize for long-term capital gains, etc. Is this all legal? Absolutely. The point is - nobody likes paying taxes - people try to minimize whatever it takes. Billionaires do the same. Instead of opening Flexible Spending Account, they start a charity. Instead of using Roth IRA loophole, they start off-shore corporations. Basically, they d…
A quarter of Americans don't have a 401k, and most of those who do aren't maxing it out. If you're doing all of the things you've listed you're not really a "regular" anything any more. You're rich. Which is fine, but you should really recognize the fact.
Yeah it's basically impossible to max out 401k contributions unless you're rich or at least nibbling at the bottom edge of rich. For one thing, you probably need to own the company that pays you in order to make it happen. Like, sure, I expect some very successful general contractors and such manage to do that, it's not just the stereotypical richie-rich sorts who can, but even a fairly high-paid W2 worker drone cannot, even if they have the money to, because of how the rules work. The bare minimum level of success to play that game is to have a business income—not W2 income from a company someone else owns—that's, oh, IDK, let's say about 3x household median in the US, and you'll likely need more than that unless you're also quite frugal. Which means not many can do it.
Re: Musk’s $5.7B Mystery Gift Went to His Own Charity
#203If I had money to donate I'd donate it to the charity I thought would be most effective at helping the cause I cared most about. If I had enough money to create my own charity it would be focused on the cause I cared most about. My giant ego and hubris would make it hard for me to come to the conclusion that a charity I created wasn't the most effective at its goals, even if that didn't happen to be the case.
tbh it's even more of a non-story than that, because his "own charity" is a donor advised foundation that openly dispenses money to a wide range of completely independent charities and charitable causes he and his brother pick (many of them quite well known and well regarded), not some secretive organization with some obscure purpose that might just be an arm of one of his corporations or a place to hide wealth from…
> completely independent charities and charitable causes he and his brother pick
The money can go to any 501c3 they pick. So if there's a 501c3 that's pushing for regulation that will benefit Tesla or SpaceX or some "raising awareness" campaign that's a glorified marketing campaign or some org that influences research, etc... those are all easy pickings
Re: Musk’s $5.7B Mystery Gift Went to His Own Charity
#204If I had money to donate I'd donate it to the charity I thought would be most effective at helping the cause I cared most about. If I had enough money to create my own charity it would be focused on the cause I cared most about. My giant ego and hubris would make it hard for me to come to the conclusion that a charity I created wasn't the most effective at its goals, even if that didn't happen to be the case.
No post body was provided.
Re: Musk’s $5.7B Mystery Gift Went to His Own Charity
#205Earlier quoted context omitted.
“However, crucially, when the money leaves the foundation it must go to an approved charity.” They can spend money on expenses and those expenses can benefit you. Having family members work for and be generously paid by such an orientation is a common example. Anytime you control a cash flow you can benefit from that cash flow.
yes, but that income will be fully taxed by the recipient (at whatever their tax rate is). The recipient isn't getting it tax free.
Not fully taxed, you have the next level of legal tax avoidance in the gap between company and person.
The key to getting low single digit % tax burdens is adding in steps that allow you to add lots of % reductions and obfuscations because more overt methods tend to not be sustainable and in some jurisdictions (as in the UK) csn lead to the method being retrospectively classed as tax evasion and you end up paying the outstanding balance with interest.
Re: Musk’s $5.7B Mystery Gift Went to His Own Charity
#206Earlier quoted context omitted.
Billionaire's 501(c)(3)s aren't charities in the typical sense. They're tax-exempt piles of money that are controlled exclusively by billionaire and their families (in this case Musk and his brother). The Musk Foundation in particular has donated less than 1% of the "charities" assets (most donations less than $500K, most years less than $1M) and these "charities" can pay out to their owners from tax-exempt gains on…
Right, I first learned about this when being forced to watch some of the "Housewives of ..." shows by my wife. I couldn't figure out why all these objectively terrible people all had their own personal charities (many of the episodes revolve around the social group of the show going to each other's charity events). It turns out it's a common, but legal, "scam". Take in funds from fundraisers, give away a little, then…
It may happen, but it’s not legal, it’s called inurement and the IRS can hammer you or strip the organization of its tax exempt status if it finds out. This applies not only to ridiculous salaries but also use of the charity’s assets for private benefit.
https://www.501c3.org/dangers-of-nonprofit-inurement-and-pri...
For instance: https://apnews.com/article/campaigns-donald-trump-us-news-ap...
Re: Musk’s $5.7B Mystery Gift Went to His Own Charity
#207Earlier quoted context omitted.
Billionaire's 501(c)(3)s aren't charities in the typical sense. They're tax-exempt piles of money that are controlled exclusively by billionaire and their families (in this case Musk and his brother). The Musk Foundation in particular has donated less than 1% of the "charities" assets (most donations less than $500K, most years less than $1M) and these "charities" can pay out to their owners from tax-exempt gains on…
Right, I first learned about this when being forced to watch some of the "Housewives of ..." shows by my wife. I couldn't figure out why all these objectively terrible people all had their own personal charities (many of the episodes revolve around the social group of the show going to each other's charity events). It turns out it's a common, but legal, "scam". Take in funds from fundraisers, give away a little, then…
This sounds like a different scam than tax avoidance. They aren’t avoiding taxes so much as outright scamming people into donating to a fake charity.
Re: Musk’s $5.7B Mystery Gift Went to His Own Charity
#208The classic billionaire tax move. Donate money to your own foundation to work on things you want while getting a big tax break.
Donating $5.7B to save an absolute max (37% tax bracket; he's probably much lower with most income via capital gains) of about $2.1B in taxes doesn't make financial sense, unless you've got a plan to siphon off at least $3.6B tax-free out of the charity. Why do people think a $1B donation saves $1B in tax?
It is possible to donate appreciated stocks. And the tax rate can be higher than 37%, if it's short-term gains in California since there's state tax as well.
To run the numbers on the 37%:
Charity: 5.7B deduction * 0.37 rate = 2.109B value of the tax deduction
Selling: 5.7B deduction * (1-0.37) = 3.5B value of the stock sale
In addition, the shares were at an inflated value - if he dumps 5.7B onto the market, it's going to drop the value of the remaining 100B of shares. Whereas by donating to the charity, you get the 5.7B deduction, and the fund you donated to does not even have to sell the stock. Even if the stock drops shortly after, such as in this case, he still gets to keep the large deduction. See https://dlj.law.duke.edu/article/insider-giving-avci-vol71-i..., illegal but unenforced.
Also, he can use the charity money anyway to pay for various things he feels like spending money on - other billionaires have used personal charities to settle lawsuits, employ their children / cousins, invest in businesses of friends, etc.
Re: Musk’s $5.7B Mystery Gift Went to His Own Charity
#209A tax avoidance scheme which also placated a twitter argument about his contributions. Unsurprising.
How on earth is this a tax avoidance scheme? Complete nonsense. Sure, he doesn't pay tax on that money, he also loses that money. This is not a net gain for Musk personally. He can't directly send money from the charity to himself, to him personally the money is more or less gone. This is less greedy then simply paying tax on the money and spending it.
Money is just something you trade for something you need or want. For most of us, we exchange money for stuff (food, clothing, shelter, transportation, toys, etc).
At some point, if you earn enough, you exchange money for time. You no longer need a job, and can spend your days as you wish because the stuff that you need is covered.
And then beyond that, when you are free and have no risk, what do you spend money on? There comes a point where ultra wealthy people spend it on power, control, and influence. If the money is taxed, it is no longer available to you to spend. But, if there were a way to shift it to a place where you could direct it in ways that you want for causes, power, or influence, then it remains effectively in your control. He didn't lose the money. He may lost his ability to use it to buy himself stuff, but he doesn't want stuff at this point.
Re: Musk’s $5.7B Mystery Gift Went to His Own Charity
#210Earlier quoted context omitted.
I don't think it's clear how this contradicts the comment you're replying to.
“However, crucially, when the money leaves the foundation it must go to an approved charity.” They can spend money on expenses and those expenses can benefit you. Having family members work for and be generously paid by such an orientation is a common example. Anytime you control a cash flow you can benefit from that cash flow.
It's not unreasonable for a family member to want to spend their days working at a charity, using the family funds and time for good. But then it gets spun as nepotism by haters.