UK tithing exploit

[HaggisShuu]

Title is a joke, but I think this is how some people see what I'm about to describe. 
 

In the UK we have a system called gift aid. If you are a UK tax payer, and make a donation to a registered charity, the organisation has the option of going to our tax authority (HMRC) to claim an additional 25% of the value of the donation, this extra is taken out of the income tax you have already paid to the charity.

So to work out how much I owe, I take my pre-tax income figure, deduct my pension contribution (as I intend to pay tithing on my pension when I claim it) and divide the figure by 1.25. (As I donate through gift aid) when the church claims its additional 25% from my income tax, it will equate to the full 10% value of my pre-tax earnings, taken entirely from my full pre-tax earnings. 

The reason why some people may see this as an exploit, is ironically, as tax is an obligation in the UK, those who pay pre-tax using gift aid, pay less on their tithing slips and feel the pinch less, than somebody who pays after tax, without gift aid - and people disagree on what does and does not count as "increase". 

I personally do not pay my tithing this way as I never really understood how the system worked until recently. However I am considering it, as the church still receives the full 10% of my pre-tax income. Up until recently I have always paid 10% of my income post-tax with gift aid, so essentially giving 12.5% of my pre-tax income + fast offerings and other donations.  
 

There is not much point to me sharing this information, I just found it fascinating. 

[NeuroTypical]

And here I thought the US tax code was the only one like that!

Yeah, there are a few "tax advantaged" ways to pay tithing in the US, and I know a few people who do it that way.   Some of them are like "lock in your money for higher interest, and pay taxes and penalties if you withdraw funds early - unless it's for charity".   I know a guy who lost money doing it this way, because he didn't factor in a small recession.  Would have been cheaper just to pay tithing.

[Carborendum]

38 minutes ago, HaggisShuu said:

this extra is taken out of the income tax you have already paid to the charity.

Unless I'm mistaken, there is a comma or some other delineator missing from this sentence above.  Please verify:

So, if the charity (in this case, the Church) has the *option* of applying to the government to get a 25% bonus from government coffers.  i.e. 25% of what they received from donors is the amount the Church can receive from the government as a completely separate transaction.

The one problem I see is that it could be possible for some people to not pay enough taxes to the government to cover this additional 25%.  And it would be awfully tempting to say, "as long as the Church gets the money, who cares where it's from?"

Well, tithing isn't really about "The Church getting the money."  It is about our willingness to sacrifice, whether it is the widow's mite or the rich man's yacht, are we willing to sacrifice?  Yes, it is the Lord's law of finance.  But it's also more than that.

Another question: In this system, how do individuals know whether the Church actually applies for this additional amount?  If the tithe-payer expects it, but the Church never gets it, then both goals are not fulfilled.  The Church doesn't get it.  And we do not sacrifice.

Edited October 9, 2024 by Carborendum

[Vort]

I blame the antidisestablishmentarians.

[Vort]

8 minutes ago, Carborendum said:

Unless I'm mistaken, there is a comma or some other delineator missing from this sentence above.  Please verify:

So, if the charity (in this case, the Church) has the *option* of applying to the government to get a 25% bonus from government coffers.  i.e. 25% of what they received from donors is the amount the Church can receive from the government as a completely separate transaction.

The one problem I see is that it could be possible for some people to not pay enough taxes to the government to cover this additional 25%.  And it would be awfully tempting to say, "as long as the Church gets the money, who cares where it's from?"

Well, tithing isn't really about "The Church getting the money."  It is about our willingness to sacrifice, whether it is the widow's mite or the rich man's yacht, are we willing to sacrifice?  Yes, it is the Lord's law of sacrifice.  But it's also more than that.

Another question: In this system, how do individuals know whether the Church actually applies for this additional amount?  If the tithe-payer expects it, but the Church never gets it, then both goals are not fulfilled.  The Church doesn't get it.  And we do not sacrifice.

This is simply a way for people to try to pretend to pay tithing without actually, you know, paying tithing. It is not a UK thing; it is a mortal-in-a-fallen-world thing. I hope I have not done the equivalent of this, but I well may have.

For example, since my earliest childhood, I have endeavored always to pay my full tithing faithfully. But I have refused to tithe FICA withholdings, reasoning that it's not income if I never see the money. It's like someone offering you $100 to do a job, then when you do the job, he gives you $90 and says, "I might give you some of the $10 I have withheld at some time in the distant future." Would you tithe that $10 that you never received?

Remember, FICA is not a tax, the benefits of which I see in roads and schools and such, and which I therefore tithe. FICA is retirement, which I only see when the government doles it out to me, which it has never done as of today. When I receive the money, I will tithe it.

But I fear that, somewhere deep in my psyche and heart, this is a way for me to avoid "unfair" tithing by parsing what the corrupt US government does. I think that is not true; if I believed it, I would certainly tithe my FICA withholdings. But maybe it is true, and my self-deception is so deep or so subtle that I don't recognize it, even when I'm looking for it.

Anyway, that's what I think that HaggisShuu's "tithing exploit" is.

[Vort]

3 minutes ago, Vort said:

Anyway, that's what I think that HaggisShuu's "tithing exploit" is.

By this, I mean the "tithing exploit" that HaggisShuu explained, not the "tithing exploit" that HaggisShuu participates in. Just to be clear.

[HaggisShuu]

29 minutes ago, Carborendum said:

Unless I'm mistaken, there is a comma or some other delineator missing from this sentence above.  Please verify:

The way I understand it, when you pay your taxes to the government, the amount the charity wants to claim for is diverted away from the government, to the charity from the tax money you pay. So government gets a little less tax, church gets a little more cash. 

Here is his majesties glorious link to the information you seek: https://www.gov.uk/donating-to-charity/gift-aid

As for the concerns you raise, you have to pay a certain amount of tax to qualify for a gift aid payment. The UK church site also has separate options to pay through gift aid, and the extras the church gets are credited to your tithing statement when the church receives them. 
 

 

Edited October 9, 2024 by HaggisShuu

[HaggisShuu]

40 minutes ago, Carborendum said:

The one problem I see is that it could be possible for some people to not pay enough taxes to the government to cover this additional 25%.  And it would be awfully tempting to say, "as long as the Church gets the money, who cares where it's from?"

Well, tithing isn't really about "The Church getting the money."  It is about our willingness to sacrifice, whether it is the widow's mite or the rich man's yacht, are we willing to sacrifice?  Yes, it is the Lord's law of finance.  But it's also more than that.

 

I agree with this to some extent - I do think that for some who this as a way to save money, then it is cheating the church. I just read 2 Chronicles 25 and the way Amaziah is described as doing "that which was right in the eyes of the Lord, but not with a perfect heart." Applies to these people. 
 

But for those who have always calculated their tithing expenses before you obligations are deducted - choosing to pay gift aid in this way, makes no difference, the church still receives 10% of what you earn, if it's done with a perfect heart and the financial result is the same why fret about it? 

Edited October 9, 2024 by HaggisShuu

[HaggisShuu]

23 minutes ago, Vort said:

By this, I mean the "tithing exploit" that HaggisShuu explained, not the "tithing exploit" that HaggisShuu participates in. Just to be clear.

Lol, as I said, I pay 10% of what I see in my bank account and so the gift aid payments the Church receives is a little bonus. 
 

(I expect to get 25% higher in the celestial kingdom for my efforts though 😉)

[HaggisShuu]

48 minutes ago, Carborendum said:

 

So, if the charity (in this case, the Church) has the *option* of applying to the government to get a 25% bonus from government coffers.  i.e. 25% of what they received from donors is the amount the Church can receive from the government as a completely separate transaction.

 

I believe I poorly worded it. I should rather has said that the organisation *goes* to the authorities to claim the extra. 
 

If you choose donate this way I think it's a legal obligation as if you pay on our higher 40% tax bracket you can actually claim personal tax rebates just for donating through gift aid. (I wouldn't quote that as fact though, I would just assume that if somebody donating through gift aid has tax implications then you would be obligated to make good on your promise as an organisation to utilise it.)

Edited October 9, 2024 by HaggisShuu

[NeuroTypical]

10 minutes ago, HaggisShuu said:

(I expect to get 25% higher in the celestial kingdom for my efforts though 😉)

Well, between your tithing generosity, and your participation on Thirdhour, that is practically guaranteed. 

[Carborendum]

1 hour ago, HaggisShuu said:

As for the concerns you raise, you have to pay a certain amount of tax to qualify for a gift aid payment. The UK church site also has separate options to pay through gift aid, and the extras the church gets are credited to your tithing statement when the church receives them. 

If the Church is offering that as an option for payment, then it sounds like that is your license to use that method.  Nothing wrong with it.

And it is similar to what we do in the US.  The analog in the US tax system more beneficial for wealthy people, but even lower class get a benefit.

***(Note: I'm simplifying it for communication purposes.)

If I make $10,000, I would normally get taxed on $10,000.  But we also have deductions.  I'm assuming you have something similar.  If I spend $500 on a computer for my business, then I can deduct that as an expense.  So, I will only be taxed on $9,500.  

Charitable donations are also deductible.  So, if I pay $1,000 of tithing, I get taxed on $9,000 instead of $10,000.  If I'm in the 10% tax bracket, then that saves me $100 in taxes.

It's even better for wealthy people.  The highest bracket is 37%.  So, I'd get $370 reduction on tax requirement for that $1,000 tithing payment.  That's even better than reducing the tithing by 20%.  But you get to do it even when you're poor.

Poor people in America usually don't have to pay taxes at all (depending on how poor you are).  But, unfortunately, many poor people don't know how to do tax returns, so they end up paying taxes that they don't need to pay.  Sad.

So, really, it is the same thing.  The difference is that we apply to the government to get our taxes back from them.  The Church doesn't apply for it.

Edited October 9, 2024 by Carborendum

[Traveler]

When I lived in the Seattle area, I encountered a number of wealthy members that did some interesting things with tithing.  For example, one member paid his tithing every other year.  In the year they paid tithing they would pay a double amount.  That same year they would pay double interest on the mortgage and several other legal deductible items.   The year they had all these deductible items they would itemize their tax return.  For the other years they would not itemize and instead file for standard deductions.

I thought a lot about all this and considered writing a pamphlet titled, “Tithing Strategies for the Wealthy.”

Here is another idea.  If one receives a windfall – like the sell of a business, receives stock options or for any other reason obtains an increase in income that is subject to capital gains – they can pay multiple years of tithing and other donations.  It is not so much that they get to keep more as it is that the L-rd is given more in sacred funds than the government that seems to have a proclivity to waste it. 

This idea is very wild.  One sits down and determines what they will earn from now until they retire.  Let’s say, for the sake of argument, the amount is $3 million.  They then purchase a life insurance policy for $300,000 that they maintain until they die.  They designate the Church as the beneficiary.   Ta Da! They no longer have to worry about tithing until they retire.  If they happen to go over they can take out another policy or just pay the difference.  If the L-rd needs the money the person can die early, and the Church will get a landfall.

I will add @HaggisShuu's strategy to my list.  If anybody has something else to add – please post it and I will also add it to the list.  😁

 

The Traveler

[Vort]

16 minutes ago, Traveler said:

For example, one member paid his tithing every other year.  In the year they paid tithing they would pay a double amount.  That same year they would pay double interest on the mortgage and several other legal deductible items.   The year they had all these deductible items they would itemize their tax return.  For the other years they would not itemize and instead file for standard deductions.

I just found out that my little sister and brother-in-law do this. And they're not rich, though they do own some rental properties. They pay ahead on their tithing based on the anticipated amount of income for the coming year, giving them an approximately 20% income deduction claim instead of 10%. In the 10% tax bracket, if they're making $150,000 a year with their rentals and two incomes (example only; I don't know their income, but they're empty nesters, so my sister works as a nurse), they can reduce their income by $30,000 instead of $15,000 by using tithing as income write-offs, and thus achieve a $3000 tax break for the year instead of $1500. If you get your finances in such a way as to be able to do this, that seems like a great idea. I personally have no problem with this; it does not violate the letter of the law of tithing, and I do not believe it violates the spirit of the law, either.

[Carborendum]

56 minutes ago, Traveler said:

That same year they would pay double interest on the mortgage...

This makes no sense.  There's no such thing as paying double interest on the mortgage.  That's not a thing.  They're doing something else.

And if it were possible, it would make more sense to pay that on the off years.

Maybe you're mixing up words... Instead of "double interest" you meant something else?  Perhaps, double-payments?

Edited October 9, 2024 by Carborendum

[Carborendum]

1 hour ago, Vort said:

They pay ahead on their tithing based on the anticipated amount of income for the coming year, giving them an approximately 20% income deduction claim instead of 10%. In the 10% tax bracket, if they're making $150,000 a year with their rentals and two incomes (example only; I don't know their income, but they're empty nesters, so my sister works as a nurse), they can reduce their income by $30,000 instead of $15,000 by using tithing as income write-offs, and thus achieve a $3000 tax break for the year instead of $1500. 

I don't know what this is describing.  But I don't see how this would reduce taxes.

Edited October 9, 2024 by Carborendum

[Traveler]

2 hours ago, Carborendum said:

This makes no sense.  There's no such thing as paying double interest on the mortgage.  That's not a thing.  They're doing something else.

And if it were possible, it would make more sense to pay that on the off years.

Maybe you're mixing up words... Instead of "double interest" you meant something else?  Perhaps, double-payments?

Perhaps the wording is wrong.  It works like this.  At the end of the year you go through your payment tables, add up all the interest for the next year and prepay that interest in a single payment.  I have yet to see a mortgage that does not allow early payments.  That wording allows prepayments.  If the holder of the mortgage is upset with early payments (especially early interest payments) – they are not thinking it through.  Hopefully, I should not have to explain this all in detail.

 

The Traveler

[Vort]

5 hours ago, Carborendum said:

6 hours ago, Vort said:

They pay ahead on their tithing based on the anticipated amount of income for the coming year, giving them an approximately 20% income deduction claim instead of 10%. In the 10% tax bracket, if they're making $150,000 a year with their rentals and two incomes (example only; I don't know their income, but they're empty nesters, so my sister works as a nurse), they can reduce their income by $30,000 instead of $15,000 by using tithing as income write-offs, and thus achieve a $3000 tax break for the year instead of $1500. 

I don't know what this is describing.  But I don't see how this would reduce taxes.

PAYING ONE YEAR OF TITHING PER YEAR VS. TWO YEARS OF TITHING EVERY SECOND YEAR
(Vastly simplified for illustrative purposes)

Case One: Itemized deductions each year

• Yearly income: $150,000
• Yearly tithing amount: $15,000
• Yearly taxable income: $150,000 - $15,000 = $135,000
• Yearly taxes @ 10% tax rate: $135,000 x 0.10 = $13,500

Total taxes paid over two years: $13,500 x 2 = $27,000

Case Two: Standard deduction each year

• Yearly income: $150,000
• Yearly tithing amount: $15,000
• Yearly standard deduction: $20,000
• Yearly taxable income: $150,000 - $20,000 = $130,000
• Yearly taxes @ 10% tax rate: $135,000 x 0.10 = $13,000

Total taxes paid over two years: $13,000 x 2 = $26,000

Case Three: Itemized deductions year one (when tithing is paid for both years), standard deduction year two

Year one

• Yearly income: $150,000
• Yearly tithing amount: $30,000
• Yearly taxable income: $150,000 - $30,000 = $120,000
• Yearly taxes @ 10% tax rate: $135,000 x 0.10 = $12,000

Year two

• Yearly income: $150,000
• Yearly tithing amount: $0 (already paid previous year)
• Yearly standard deduction: $20,000
• Yearly taxable income: $150,000 - $20,000 = $130,000
• Yearly taxes @ 10% tax rate: $135,000 x 0.10 = $13,000

Total taxes paid over two years: $12,000 + $13,000 = $25,000

Edited October 10, 2024 by Vort

[JohnsonJones]

On a tax note, those who receive Social Security in the US, the question that has some asking is whether to pay tithing or not.

Some say since they paid tithing on the gross of their income, they owe no tithing.

However, Social Security is a ponzi scheme.  We aren't getting the money back that we paid into it, we are getting our kids money that they are paying into it. 

One reason Social Security is having trouble is because, like all Ponzi schemes, it is reliant upon an ever expanding population to pay it, but the population has been remaining steady or decreasing instead.

Some say that you should have kept track of how much you paid into Social Security and after you reach that amount that you paid into it, then you start paying tithing.

Thus far I've paid on it, but it always sounds VERY tempting to say I've already paid on the gross when I was younger, I shouldn't have to pay on it now.

This probably gets far more confusing on those who receive benefits from the government.  Technically, I think they AREN'T supposed to pay tithing on those benefits, and in some instances those benefits can be reduced if they ARE paying tithing or other (what the government would consider) unnecessary items with that money.  So, the question comes...should they...or shouldn't they.

Always a tricky question and one that even when I was asked I would reflect back at the asker and tell them to do as they feel they should after prayer and pondering the issue themselves.  That way no one can say that a Church leader told them that they had to pay, or that it was required of them to pay on benefits that technically, I think the government says should not be utilized for unnecessary things or otherwise. 

Tough question though.  Technically, I'm not sure if the Church could eventually be sued by the government for taking tithing on those funds.  I suppose it would hinge on some of the court cases currently occurring, and perhaps others that may occur in the future on whether the Church could actually be taken to court or not over people tithing on things like that (currently the onus would be pointed at those who tithe, but if the government could say that the Church was negligent or not clear enough on the policy of tithing in these situations, and thus the people felt PRESSURED or FORCED to tithe...then it becomes a different ballgame).

[Carborendum]

8 hours ago, Vort said:

Case One: Itemized deductions each year

Total taxes paid over two years: $13,500 x 2 = $27,000

Case Two: Standard deduction each year

Total taxes paid over two years: $13,000 x 2 = $26,000

Case Three: Itemized deductions year one (when tithing is paid for both years), standard deduction year two

Total taxes paid over two years: $12,000 + $13,000 = $25,000

So, it is because their total deductions in one year are less than the itemized deductions in one year.  That's pretty simple.  But, unfortunately, it's pretty simplistic.

They need to look at itemizing more deductions than just tithing alone. *

• What about their home mortgage interest? 
• Rental expenses? (mortgage, insurance, cleaning, yard care,Air B&B fees, maintenance, etc.)
• They go to the property once in a while. That's business mileage.  If they go by their property just to glance at it (which is considered a property inspection) on their way home from work, they can consider that a site visit and deduct mileage.  
• They go out to eat and talk about the rental for 2.3 seconds, then forget about it the rest of the evening.  That's a business dinner.  They can deduct a percentage of the meal cost and the miles to drive to and from the restaurant (...err... meeting location).
• They have a desk with a computer from which they check the mortgage balance and check Air B&B.  The computer and desk are business expenses, as is their internet bill. 
• And they now have a home office from which they can deduct more based on square footage.

Truly, there are ALL SORTS of things you can deduct once you have a business. And if that total can be higher than the standard deduction every year, it would be better to do it year by year because of tax brackets. 

I've been doing this since I first started a business in 2002. Not a single year have I had fewer deductions than the standard deduction.

No, this is not a cheat.  It is built into the IRS system on purpose for the little guy.  If you're just starting a business, it is best if you start from home because of all the tax advantages you get.  Kamala's promotion of a $50k deduction doesn't even change anything.  You'd still have to itemize. And guess, what?  As long as it is a valid expense (which is pretty lenient) there is no limit.

*NOTE: I am not a CPA.  I'm just a business owner who has had many conversations with various CPAs over the years to go over what I can and cannot deduct. 

Me to a new CPA I hired: "I know that I'd *like* to deduct everything.  And whatever I can do to reduce that tax liability within the law is what I'd like to do.  I don't know how to do that legally.  YOU do.  That's why I pay you.  So, tell me everything I can do to reduce that and I'll do it."

Edited October 10, 2024 by Carborendum

[Carborendum]

11 hours ago, Traveler said:

Perhaps the wording is wrong.  It works like this.  At the end of the year you go through your payment tables, add up all the interest for the next year and prepay that interest in a single payment.  I have yet to see a mortgage that does not allow early payments.  That wording allows prepayments.  If the holder of the mortgage is upset with early payments (especially early interest payments) – they are not thinking it through.  Hopefully, I should not have to explain this all in detail.

Yes, you're definitely using the wrong terminology.  That's pretty important when you're talking about finance and taxes.

The early payments on interest is not what you may think.  And depending on what you mean, it is only available at credit unions (last I checked, which was about 15 years ago).  Regular banks and mortgage companies don't do that.  And even if they do allow it, it is a very poor financial decision overall.  Whatever you *might* gain on tax returns you lose on comparative reduction of interest overall.

This is a bad financial decision.

[Carborendum]

16 hours ago, Vort said:

For example, since my earliest childhood, I have endeavored always to pay my full tithing faithfully. But I have refused to tithe FICA withholdings, reasoning that it's not income if I never see the money. 

Remember, FICA is not a tax, the benefits of which I see in roads and schools and such, and which I therefore tithe. FICA is retirement, which I only see when the government doles it out to me, which it has never done as of today. When I receive the money, I will tithe it.

I do the exact same thing.  But my wife has misgivings about it.  And all my kids follow her example.

[Traveler]

3 hours ago, Carborendum said:

Yes, you're definitely using the wrong terminology.  That's pretty important when you're talking about finance and taxes.

The early payments on interest is not what you may think.  And depending on what you mean, it is only available at credit unions (last I checked, which was about 15 years ago).  Regular banks and mortgage companies don't do that.  And even if they do allow it, it is a very poor financial decision overall.  Whatever you *might* gain on tax returns you lose on comparative reduction of interest overall.

This is a bad financial decision.

It depends on your tax bracket and how many brackets it can lowered – also how many and the amounts of property loans one has.  The primary concept is to review all the deductions one has and double them up every other year.  But your assessment is correct if your tax bracket is already around 10%.

 

The Traveler

[Vort]

5 hours ago, Carborendum said:

But, unfortunately, it's pretty simplistic.

Which is why:

12 hours ago, Vort said:

PAYING ONE YEAR OF TITHING PER YEAR VS. TWO YEARS OF TITHING EVERY SECOND YEAR
(Vastly simplified for illustrative purposes)

 

5 hours ago, Carborendum said:

No, this is not a cheat.  It is built into the IRS system on purpose for the little guy.

As a general rule, following the law is never a cheat, and tax laws in specific are often designed to encourage a particular outcome. Don't ever feel guilty for "using the tax system" to minimize your tax burden.

[Carborendum]

2 hours ago, Traveler said:

It depends on your tax bracket and how many brackets it can lowered – also how many and the amounts of property loans one has.  The primary concept is to review all the deductions one has and double them up every other year.  But your assessment is correct if your tax bracket is already around 10%.

I'd love to hear this.  Please provide an example of how paying early interest payments would benefit the overall financial position.