Endowment tax

Endowment tax is a US taxation of some endowments. Typically endowment payments, because of their attachment to non-profit organizations, are not taxed. Endowments can be up to several billion dollars at some of the richest universities in the United States. The non-profit status of some institutions like hospitals has been questioned in the United States House Ways and Means Committee.^[1]

As enacted in the Tax Cuts and Jobs Act of 2017 and amended by the Bipartisan Budget Act of 2018, a proposed excise tax of 1.4% will be levied on endowments supported by institutions who have at least 500 tuition-paying students with a resulting net asset of $500,000 per student. In turn, without adjusting the $500,000 for inflation, more institutions will result in being subject to this tax over time. Thus the tax applies to the wealthiest large institutions as well as some smaller colleges with small enrollments as of present day.^[2]

Typically, a donation made to an endowment fund can be tax-deductible for those who give the contribution.

Historical precedents

The city of Cambridge, Massachusetts, has proposed taxing MIT and other major universities on these previously exempt, non-profit earnings, however most organizations still fight against the introduction of this tax.^[3]

Typical forms

• Taxable allowance

When a donation exceeds 50 percent of the donor's adjusted gross income (AGI), the IRS will limit the amount of money donated by the donor. Some donors are likely to have a 20% to 30% tax exemption, and marital status may affect that amount, so it is best to consult a tax adviser before making a big charitable donation. In addition, the life insurance death claim donation is not restricted by AGI.^[4]

• In-kind donations

In addition to donating money, many charities accept donations in kind, such as cars, houses and art. When a donation is made in kind, the donor must demonstrate the value of the donation in the open market to obtain the corresponding allowance.

• Accrued asset donation

Before donating to an asset that has increased in value since the purchase, it is important to consider whether it is better to donate directly to the asset or to donate after the sale. Direct donations can be taxed at the original purchase price without paying more tax on any potential profits.^[5]

• Stock donation

If a donor receives an income tax credit on the day's value of the share transfer, he does not have to pay VAT on the added value of the donated stock. And after giving away the stock, the donor can buy back the stock at any time, so if you can buy back the stock, it will bring a significant amount of income. But only 30 percent of the tax allowance is given, often less than cash donations.

• Real estate donation

A property held for more than a year can be used as a charitable donation to be taxed at market prices. The allowance is 30% of the adjusted gross income, but can be assessed within five years and can be deducted from the federal estate tax. Donors at the same time, also need not pay property taxes, maintenance fees, property tax and donors after donation will also retain rights in their lifetime, just put the permanent transfer of the land can get tax breaks.

• Donation related expenses

The related expenses incurred in the donation can also be used to offset tax. This is similar to the reimbursement of related expenses at work, which maximizes the benefit of the donor.^[6]

Endowment tax in China

In order to encourage enterprises and individuals to donate to the public in the affected areas, the State Administration of Taxation stipulates that individuals should use their income for donation expenditures. The donation amount does not exceed 30% of the taxable income declared by the taxpayer, and the taxable income can be taxable from it. Deductions are made from the amount of income so as to offset part of the tax. The current tax law stipulates that public welfare donation expenses incurred by an enterprise shall be deducted from the calculation of taxable income in the portion of the total annual profit of less than 12%.^[7]

• For enterprises:

Non-profit donations (through non-profit social organizations or the people's government departments at the county level and donations for prescribed public welfare undertakings) that occur in an enterprise can be used to calculate the amount of taxable income within 12% of the total annual profit.

• For individuals:

Individual donations for public welfare donations that don't exceed 30% of the taxable income can be deducted; individuals donate real estate in the following cases: The parties do not levy individual income tax: Free the housing property to the spouse, parents, children, and the like. The grandparents, grandchildren, grandchildren, brothers and sisters, who directly support or support the family, shall obtain the inheritor of the house property rights, the heirs to the testator, or the bequeathor according to law. In the case of the above, the recipient's donated income received from the unpaid house is paid personal income tax in accordance with the “Other income taxed by the financial department of the State Council.”

Individuals may pass their income through social groups and state agencies in China to education and other social public welfare undertakings, as well as donations that have suffered serious natural disasters in areas and impoverished areas. The donation amount does not exceed 30% of the taxable income declared by taxpayers. It is deducted from its taxable income. Individuals donating to rural compulsory education through non-profit social organizations and state agencies are allowed to fully deduct the amount of income before the individual income tax is paid.

See also

• List of U.S. colleges and universities by endowment
• Internal Revenue Service (US tax collection agency)
• PILOT Payment in Lieu of Taxes

References