By Dan Caplinger, February 1, 2007
http://www.fool.com/personal-finance/taxes/2007/02/01/irs-attacks-charitable-cheats.aspx?npu=y
This article talks about how when people find a good method for cutting their tax bills, they tend to use it as much as they can, for example making gifts to charitable organizations. Judging from the amount of money and effort that businesses and individuals expend, it's clear that paying less in taxes is a top priority throug
hout the nation. Many taxpayers have found ways to push charitable strategies beyond the limits of the law, which has attracted the attention of the IRS. The IRS is currently focusing on a special charitable-giving strategy known as a donor-advised fund, to ensure that taxpayers are not exploiting its loopholes to dishonestly save some cash. If you just write a check to charity, you get a current tax deduction, but you give up control over how your donation will be used. Some wealthy donors, preferring to retain this control, establish private foundations that allow them to get similar tax benefits without having to decide immediately which charities will receive the donated funds. Private foundations can be expensive to establish, and they require significant attention from their donors. These funds are set up by independent charities. For each person who donates, the charity sets up a separate donor-advised fund. In return, the donor can take an immediate deduction for the amount of the gift. Unfortunately, taxpayers can use donor-advised funds to make gifts that will benefit them personally. In the wrong hands, a donor-advised fund can use its operating charity almost like a money-laundering scheme, making it harder to link any gifts to their ensuing personal benefit. That's what the IRS is trying to stop. Unfortunately, this pattern is not likely to change. Taxpayers can only make the best of available deductions and other tax benefits as long as they are available, and hope that no one will abuse the system and ruin it for everyone.Relationship to Chapter 4 - Income tax
The book talks about all the types of taxes that we have in BC write now and much more. For example, direct tax, progressive tax, proportional tax, regressive tax and marginal tax. These all are, in some way or another, related to income tax. The article is about how the people are trying, illegally, to cut their taxes so they do not have to pay any taxes or they pay less taxes. The book goes into how the taxes are calculated and how large or small a tax cut can or can not be. It tells us how some people are in debt because of the high tax rates that BC is not going to put down for a long time, and even if they do, they will still increase something to keep the high debts that the people already have. Eventhough Canada is trying to be fair to everyone with putting the progressive form of taxtion on income, the people are still trying to get rid of the taxation by donating to charities or doing something else that is illegal or not right for them and the economy.
Personal Reflection -
I never knew that you coud decrease the amount of tax that you pay jsut by donating something to an organization. It is nice that their taxes go down when they donate something to a charity, but beacause of this they are trying to, illegally, cut all their taxes off by donating something and writing down something else. I do not think that the government should even allow this, meaning allow the reduction of the amount of tax that should be paid by donating something to a charitable organization. When giving something to charity , you are supposed to have an open and kind mind, but because of this reduction by donating law the people just pay something for their own greed. They give away something little to an organization, but at the end the profit goes to the donator. The donator will have more money left over to spend or to save. This is not fair to the poor, who can not give anything to the charitable organization, so they get stuck with paying their full tax. They should outlaw this rule, because it is not equal among everyone in the province/country and it makes people even more selfish about money than they already are.