Tax implications for donating to a charity?

[BeTheChange]

As some of you may know I'm currently operating a company that provides training courses to students and professionals.

I want to set up a separate charity through which I can effectively provide free training courses to disadvantaged students. I will use the charity to purchase his current company and operate it as a trading subsidiary of the charity.

I then plan to donate any profits the trading subsidiary makes to the charity. I therefore don't think I will have to pay tax on any profits from the subsidiary. Does this sound reasonable? It seems that based on HMRC's guidance this is true. However is this actually the case? Furthermore even if this were the case I plan to eventually dissolve the charity and the trading company and extract all cash in the group.

Would I even be able to (1) dissolve the charity and take donations from the subsidiary out the company as a Director or Trustee and (2) would those funds still qualify for Entrepreneurs Relief?

 

[Bible_Belt]

Just to set up a 501c3 qualified charity, you're looking at about ten grand in lawyer fees.

The main purpose has to be charitable work. You don't have to pay tax on the profits from trading that are donated. But they are supposed to be spent on the charity's work. You might be able to get away with paying yourself a reasonable salary to run it (on which you then have to pay income tax yourself), but you can't pull the charity's money out and keep it for yourself, or if you do, it will all be taxed as personal income to yourself.

 

[dfzero]

Donald Trump doesn't pay taxes.

 

[Tictac]

An IRS 501(c)3 doesn't pay income tax. They also can generally avoid sales and property tax.

Donating income to a not-for-profit will reduce taxable income. But there are 'arm's length' tests you have to meet. (Ask the Clinton's they have this down cold).

Your idea is a pretty naked fraud. So work with a good tax CPA, maybe a tax lawyer. They can likely figure it out and keep you from having the IRS move into your rectum.

 

[BeTheChange]

Yeah you guys are right it seems.

Consulted with a tax advisor and he said it basically amounted to fraud

 

[The_flying_dutchman]

Yeah you guys are right it seems.

Consulted with a tax advisor and he said it basically amounted to fraud

Didn't you say in another thread that you're an accountant?

If so, why aren't you aware that the most common way people try to cheat taxes (and also get busted) is through the use of a bogus charity organization? The IRS is NOT dumb, charities are placed under a microscope and they scrutinize every detail.

Discrepancy 1: Since the "charity" owns the "subsidiary" company, you're not really donating anything because there is no outflow of money, this is called "not at arm's length".

Discrepancy 2: CORPORATE charity deductions are capped at 10% Taxable Income. For argument's sake, let's say you somehow pass the "arm's length test", and your business generates $100,000 of taxable income and you decide to donate all $100,000 to "charitable causes". You would still have to pay taxes on $90,000 because you're only allowed a 10% deduction.

PERSONAL charity deductions are capped at 50% AGI.


There's no such thing as a 100% charity deduction.

Unless you're a millionaire/billionaire, you won't reap much tax benefit from charity donations.


If your business is incorporated, there are better ways to reduce your tax liability than through *ahem* "charitable causes"

 

[BeTheChange]

Misconception 101: All accountants are tax accountants.

 

[ralphmabry]

Hello

Yeah Its Looks Cool

Interior Design