[ed. note: Please don’t take any tax advice from WLBOTT. Just to be safe, maybe don’t take any advice from us.]
Are you a wee bit peeved that the tRump administration is giving ICE a budget bigger that Israel’s military?
How about a radical idea – give away so much of your income that none of your labor supports the evil machinations of the tRump administration.
Actually, this is very difficult to do.
The American income tax system is incredibly complicated and convoluted, and filled with all kinds of special deals that won’t apply to you. You’re basically rolling the dice when you hit the TurboTax “send” button (the software’s great, but the process is dire).
In a nutshell, you figure out your Adjusted Gross Income (AGI), subtract your deductions, and pay tax on the rest. For our example, we’ll use a married couple filing jointly.
Through the benevolence of the IRS, our couple can use the “standard” deduction of about $29,000, or they can sift through their pile of receipts to see if they have deductions greater than $29K. Typically the only people that benefit from itemized deductions are those who have recently purchased a home and are paying large quantities of interest on their loan. If you’re renting, you’re out of luck.
Let’s start with our older couple – no deductions. They have several solid charities in mind that will help offset the cruelty of tRump canceling foreign aid. They are fond of the vitamin A program of Helen Keller International (https://helenkellerintl.org/) and World Central Kitchen (https://wck.org/).
With their social security income and dividends from twine futures, they have an AGI of $100,000. Before they can get one cent of tax relief from the current regime, they have to donate more than the standard deduction. There is also a maximum amount they can donate – $60,000 (60% of their adjusted gross income), to get a tax deduction.
Some WLBOTT elders have special charities. For example, the Large Foot Research Center.
Elder G works some numbers for us.
Key assumptions
- No kids, no other deductions.
- Filing jointly.
- Donate $50,000 (and itemize instead of standard deduction).
- We’ll use approximate marginal rates to estimate taxes.
- For simplicity, ignoring state tax.
How deduction affects taxable income
- Without donation: Taxable income = AGI − standard deduction ($29,200).
- With $50,000 donation: Taxable income = AGI − $50,000 (assuming they itemize).
Estimated tax rates
| Taxable Income Bracket | Approx Tax Rate (simplified) |
|---|---|
| Up to ~$23k | 10% |
| ~$23k – ~$94k | 12% |
| ~$94k – ~$201k | 22% |
| ~$201k – ~$383k | 24% |
Table of scenarios
| AGI | Taxes w/o Deduction | Taxes with $50k Deduction | Tax Savings |
|---|---|---|---|
| $50,000 | ~$2,500 | $0 (deduction wipes out taxable income) | ~$2,500 |
| $100,000 | ~$7,700 | ~$4,800 | ~$2,900 |
| $150,000 | ~$20,500 | ~$12,800 | ~$7,700 |
| $200,000 | ~$32,500 | ~$23,800 | ~$8,700 |
In a nutshell, this philanthropic strategy is not going to put a dent into the ICE budget, and will require such financial sacrifice that it will leave you exhausted and unable to simply get by.
Love and business and family and religion and art and patriotism are nothing but shadows of words when a man’s starving!
O. Henry
A Young Couple
Now let’s turn our attention to Tate & Tilda Tangle, a young couple who recently bought a small home in Austin.
They have challenging finances because of the incredible expense of housing (and property taxes) in Austin.
Again Elder G breaks it down for us….
Home details
- Price: $450,000 (the median home price in Austin, Texas is currently around $528,502)
- Size: 1,300 sq ft
- Mortgage: 30-year fixed at 6.75%
- Assume they put 20% down (common to avoid PMI), so down payment = $90,000.
- Loan amount = $360,000.
Annual interest (first year)
Monthly payment (principal & interest only)
- Monthly interest rate = 6.75% ÷ 12 = 0.5625%.
- Loan amount: $360,000.
Approximate monthly payment: $2,335 (principal & interest only).
First-year interest
In the first year, most of that payment is interest.
- First monthly interest payment: $360,000 × 0.005625 ≈ $2,025.
- First monthly principal payment: about $310 (since total monthly payment ≈ $2,335).
Total first-year interest: Add each month’s interest, but a quick estimate:
Average balance ≈ $358,000 → annual interest ≈ $24,000.
Property taxes (Austin, TX)
- Average Austin property tax rate: ~1.9% of assessed value (somewhere between 1.8%–2.2%, but 1.9% is a good estimate).
Tax on $450,000:
450,000×0.019=$8,550
Summary
| Amount | |
|---|---|
| First-year interest | ~$24,000 |
| Property taxes | ~$8,550 |
So Tate & Tilda have exceeded the standard deduction through their mortgage interest and property taxes, but that’s $3K a month that’s just gone…. no equity, no nada. After they spend $3K, then they can buy food, gas, electricity, water, health insurance, auto insurance, car payment, and on and on.
But Tate & Tilda are good, ethical people, and have been inspired by Peter Singer’s book The Most Good You Can Do. They are committed to buying 300 doses of Vitamin A (through Helen Keller International) each month, knowing that they have saved children’s sight.
Summary
A story with a moral appended is like the bill of a mosquito. It bores you, and then injects a stinging drop to irritate your conscience.
O. Henry
Financial planning is important, paying taxes keeps you out of The Big House, we should take care of our brothers and sisters independent of paltry tax benefits, and in time our flame will melt the ice and dispel the darkness.
Hey, Ted.
Keep these folks in mind as you sip your taxpayer-funded margaritas in Cancun.
