A financial analysis of tithing on gross vs. net

[Vort]

Algorithm for tithing on the gross. Calculate your yearly increase as follows:

• Note amount grossed on paycheck
• Move decimal one place to the left
• Give that sum to the Church

Algorithm for tithing on the net. Calculate your yearly increase as follows:

• A: Note amount netted on paycheck
• B1: Find cost to repave a city street
• B2: Divide B1 by lifetime of repaving job
• B3: Add in the cost of city road maintenance per year for the street
• B4: Divide the above sum by the length of the street (e.g. in miles)
• B5: Calculate number of miles you have driven on city streets this year
• B6: Multiply B4 by B5.
• B: Note B6
• C: Repeat algorithm in B1-B6 for county roads, and note C6
• D: Repeat algorithm in B1-B6 for state roads, and note D6
• E: Repeat algorithm in B1-B6 for federally funded roads, and note E6
• F: Repeat an appropriate variation of the above algorithm for public utilities.
• G: Amortize cost of airports and airport maintenance over projected lifetimes and calculate your portion of that benefit
• H: Find per-student funding costs for public schools and multiply by the number of children you have in school
• I-Z+: Repeat above method for every public service, benefit, or "entitlement" you receive. Note: You will probably have to go well beyond Z to do so.
• Sum A through Z+
• Move decimal one place to the left
• Give that sum to the Church. If that sum ends up being greater than 10% of your gross (which it almost certainly will be), feel all warm inside that you have paid on the net -- that is, only on those financial benefits that you personally have enjoyed, i.e. the increase that you personally have experienced.

(Actually, pay tithing however you honestly think is best. It's no skin off my nose in any case. But I do fall somewhere between entertained and exasperated when hearing Latter-day Saints talk about the "unfairness" of paying tithing on taxes paid out, as if no benefit accrues to them from taxes.)

[JohnsonJones]

Well it depends.  In at least one nation I've been in the Tax Rate is around 60%, another it was closer to 75% to 80%.

So, let's say you make 100K a year.  You pay taxes and have 20000 a year left.  You pay on gross and suddenly you only have 10000 a year.

More extreme...you run your own business from your home on your own dime.  You make 1 million gross.  Unfortunately, with many businesses having a net profit of around 6 percent or less, (to make it easy, we'll do it as 5%) that means you spent 950 thousand on various aspects of that business.  That means you only actually earned 50,000 net.

If you pay 10% of the gross...you have to take out a 50,000 loan.  You go into debt to pay tithing on your gross. 

Questions like these MIGHT (I don't really know, so conjecture on my part) why we are only supposed to ask...are you a full tithe payer and let their answer be between them and the Lord.  If they say yes...then...I accept that answer.

[Vort]

You are right, JJ. My point actually was not to lecture anyone about how they ought to tithe. Americans have some of the lowest income tax rates in the western world, so things would look different for e.g. a European (or a Canadian). The point is that the Saints who treat tithing as if it's a tax and they're looking for loopholes in the code are missing the point.

But I'm not sure I'm completely free of that attitude myself. Tithing is very easy in principle (no pun intended), but in practice I find a great many confounding factors that make it anything but obvious.

For one specific example, I find FICA withholdings problematic. Before calculating tithing on my "gross", I first subtract anything withheld for FICA, since that is not a tax, but represents money that I am not paid. My attitude is that I will tithe that money when I receive it, as with all income. If I worked for a guy that promised to pay me $1000 but only paid me $900, with the promise that he would pay me the extra $100 in thirty years, I would tithe $90, not $100. If I invest my money in a 2% CD, I don't pay tithing on the 2% profit until the CD matures and I actually realize that profit. So it is (in my mind) with social security. Unlike taxes, FICA represents a benefit that I do not receive until some time in the future.

This idea is further substantiated when I consider that maybe I'll live a very long time, and end up receiving more from social security than I paid in. If I already tithed my FICA, those social security benefits should already have been tithed -- until I use up my "quota" that I've paid in. Then what? Consider also that the dollar I paid in back in 1990, and 2000, and 2010, was worth more than the dollar I'll be getting out. Do I correct for inflation? Do I add on reasonable interest accrued? But that would probably also be tithed. I need to keep close track of that as well as all FICA I've ever paid, then note when my aggregate social security payments received finally exceed my lifetime FICA payments. This sounds more and more like I should hire a tax attorney to figure out my tithing for me.

Bag it. I will simply avoid the whole coin-counting mess. Easier just to tithe that money when I get it.

[Fether]

1 hour ago, JohnsonJones said:

Well it depends.  In at least one nation I've been in the Tax Rate is around 60%, another it was closer to 75% to 80%.

So, let's say you make 100K a year.  You pay taxes and have 20000 a year left.  You pay on gross and suddenly you only have 10000 a year.

More extreme...you run your own business from your home on your own dime.  You make 1 million gross.  Unfortunately, with many businesses having a net profit of around 6 percent or less, (to make it easy, we'll do it as 5%) that means you spent 950 thousand on various aspects of that business.  That means you only actually earned 50,000 net.

If you pay 10% of the gross...you have to take out a 50,000 loan.  You go into debt to pay tithing on your gross. 

Questions like these MIGHT (I don't really know, so conjecture on my part) why we are only supposed to ask...are you a full tithe payer and let their answer be between them and the Lord.  If they say yes...then...I accept that answer.

I've never considered these before! Like Vort said we in America have rather low tax rates.

Ive always been a "pay gross" kind of guy on the mindset that if taxes were not already taken out of our checks and we had to go out of our way to pay them ourselves, and the terminology of net/gross didn't exist, then I would imagine I wouldn't think twice about paying 10% of there full paycheck before taxes.

As far as those unique situations like FICA, SSI, school grants, insurance claims and selling goods that I already bought years prior, I try to have the mindset of "do I feel like I'm benefiting from this transaction?" If yes, then I pay tithing. If I bought a car for $10000 and had to sell it for $1000 a week later, I don't know that i would pay tithing.

[Guest]

Here is what I do:

1) pay tithing on gross;

2) view the difference between gross and net as a "financial cushion" in case I miscalculate!  

[Grunt]

I don't even want to wrap my brain around tithing yet.  

[Fether]

7 minutes ago, Grunt said:

I don't even want to wrap my brain around tithing yet.  

Keep learning and growing in the gospel  what matters most is that you never feel like you are short changing, jumping through hoops, finding a loop hole or anything like that to the Lord and his commandments  the more you learn the more you can apply

[Traveler]

 

I have determined several tithing strategies for the rich.  Thought I would suggest a very easy one with a higher than normal return.  Take out a life insurance policy for 1/10th of your projected income.  If you die early, then you can brag in the next life about paying extra – if you die late you can start paying tithing like regular folks when you meet your projected threshold.

 

The Traveler 

[mrmarklin]

Many people don't get paychecks. They own businesses etc. 

 

I did did some tax planning yesterday for a client that pays a marginal rate of 52.6% on his next dollar. Supposing he tithes on his gross, that leaves him with less than 40% of his income to live on. This does not take into account that he also pays 15.3% Social Security and Medicare tax on his first 120K.  For most of us this would be disaster. In Europe, one hits high marginal rates much faster than in the US, so this can be a serious dilemma. Calculating "increase" can be very difficult. 

Everyone must come to his/her own conclusion with the Lord's help.

[Vort]

2 hours ago, mrmarklin said:

Many people don't get paychecks. They own businesses etc. 

I did did some tax planning yesterday for a client that pays a marginal rate of 52.6% on his next dollar. Supposing he tithes on his gross

The whole idea of paying tithing on "one's gross" doesn't make sense for a businessman. "Tithing on the gross" is a wage earner's idea. It's likely that most of us here are wage earners, so the idea makes sense in the context of the way most of us make money. But if you're a businessman or woman, clearly it doesn't work that way.

[Just_A_Guy]

I like the idea of paying on gross; but a couple years ago I had a job where my paycheck routinely included reimbursements for mileage and a number of other work-related expenses; and eventually it just seemed simpler to tithe on the amount of money that actually got deposited into my account every two weeks rather than to do a forensic accounting of each pay stub.  I figure (hopefully!) that at my current withholding levels, the Lord will get back the tithing owed on withheld taxes when I tithe on my annual tax refund check (which to date has exceeded my actual tax withholdings); and on social security/retirement contributions when I or my wife withdraw and tithe them later in life.

I take a dimmer view of the practice of defining "increase" as whatever one has left after paying one's monthly expenses; and tithing only on that amount.  But, I suppose I'm in no position to start throwing stones . . .

[mirkwood]

When I brush my teeth on fast Sunday I swallow the water after rinsing.  Sometimes I even chew gum...

[clbent04]

I thought I had the best tithing system figured out at one point- pay tithing on net, and then, any tax refund you might get back, pay 10 percent on that too. That in my mind seemed seemed to be the right way to approach it. Paying tithing on gross just seemed unnecessary. I didn't really think what I was taxed on was considered a gain

Edited August 26, 2017 by clbent04

[Midwest LDS]

Honestly I think the reason the bretheren haven't defined how one pays tithing is significant. For the moment at least, it seems to be a matter between the tithe payer and God. If you feel God is leading you to pay on gross than do so. If you feel he leads you to pay on net than do that. Unless and until the church decides to define tithing beyond what it already has, either is acceptable.

[mordorbund]

On 8/24/2017 at 3:38 PM, JohnsonJones said:

More extreme...you run your own business from your home on your own dime.  You make 1 million gross.  Unfortunately, with many businesses having a net profit of around 6 percent or less, (to make it easy, we'll do it as 5%) that means you spent 950 thousand on various aspects of that business.  That means you only actually earned 50,000 net.

If you pay 10% of the gross...you have to take out a 50,000 loan.  You go into debt to pay tithing on your gross. 

 

21 hours ago, Vort said:

The whole idea of paying tithing on "one's gross" doesn't make sense for a businessman. "Tithing on the gross" is a wage earner's idea. It's likely that most of us here are wage earners, so the idea makes sense in the context of the way most of us make money. But if you're a businessman or woman, clearly it doesn't work that way.

The Church encourages members (in a pamphlet on starting or growing your own business) to tithe on their personal income, not the business' profit. 

Quote

We know that great blessings come from paying tithing on our income. If we keep our business money and our personal money separate, it is easier to calculate our tithing.

Remember these steps:

1. Keep business and personal money in separate accounts or locations.

2. We pay tithing on personal income (salary or commission) that we get paid from the business.

3. Money in the business is not tithed. The money in the business is used to pay for business expenses, wages, and growth.

If your business is Church owned and operated, then you "tithe" from the profit, but you don't pay directly to the Church.

Quote

These [Church-owned] businesses contribute one-tenth of their profit to the [Church of Jeus Christ of Latter-day Saints] Foundation. The Foundation cannot give to itself or to other Church entities, but it can use its resources to assist other causes, which it does so generously. Millions of dollars have been so distributed. Thousands upon thousands have been fed. They have been supplied with medicine. They have been supplied with clothing and shelter in times of great emergency and terrible distress. How grateful I feel for the beneficence of this great Foundation which derives its resources from the business interests of the Church.

 

[Just_A_Guy]

LDS Foundation is now LDS Philanthropies, IIRC.