Could you explain why is that the case, I've heard that multiple times, but for me the math doesn't work out.
If I earn an amount of (x+y), I would get taxed on (x+y), but if I donate x money, I would get taxed on y, but I've already paid x in donations, so unless there is something fishy going on with the x donations part, it would make sense for someone to not donate, as they are already being taxed on y, and the taxes on x would be less than x.
So how are the rich making these donations out of my wallet?
A lot of times, the donations are something they would already be doing. For example, instead of throwing away a couch, which someone was planning on doing, they could donate it to Good Will and get a write-off for the amount the couch was worth (typically they get to fill that in). This also works for much larger things like buildings or land. So if someone owned a parcel of land that they paid $100K for, used for a long time, but then the neighborhood was blighted or something, they could then donate it. It might be worth $30K on the market, but they could say it was $100K and write off the entire amount, which would earn them $36K vs. the $30K plus sales costs to sell it outright.
There are guidelines from the IRS, but they are easy to manipulate:
Arm's-length offer. An arm's-length offer to buy the property close to the valuation date may help to prove its value if the person making the offer was willing and able to complete the transaction. To rely on an offer, you should be able to show proof of the offer and the specific amount to be paid. Offers to buy property other than the donated item will help to determine value if the other property is reasonably similar to the donated property.
So that person could get a few friends or associates to make offers on the property for $100K and that would generally be enough to prove value at $100K using the arm's-length valuation method.
Also, another example that Trump did was make donations to an organization that held meetings in his hotel. Using your example, Trump made x+y, then donated x to a charity that then spent x on Trump's hotel, so trump is paying taxes on y even though he earned x+y (it works out a little differently, but that's the gist).
