Posted: Tue Jul 13, 2004 3:31 pm Post subject: A new approach to paying Yeshiva Tuition
I broke this out of the last forum, because I just wanted people to see it. Someone gave me a new idea on how to pay for PART of tuition. Many schools (including the two that I am considering for my own children) structure tuition so that it is a combination of 'Tuition' and 'Committed Giving' - in other words, Tuition is, say 2/3 of the cost, and then require the other third to be part of a 'donation' you promise to make to the school.
For those with moderate hardships, the schools will reduce or waive the amount of the 'Donation' before they reduce the salary. For the most part, the donation is tax-deductible as a donation.
In the other post on the subject I suggested if you have employer matching donations that you find out if the donation part of the tuition could be paid this way. But I discovered another method for doing this today, although I am not 100% clear on the details and full legality.
You can set up a charitible trust. Basically the trust is structured in a way that determines how long it will sit before paying out, how much will be paid out, and what percentage will get reinvested. Say you set this up when your kid is 2 with $30K and make a modest 10% year for 3 years. By the end of the 3rd year you will have around $40K. You can then have it pay out the $3-5K year in 'donations' from the trust.
it sounds interesting and promising, and I will post info when I learn more.
You're not addressing the real issue. This isn't about families who have 30k in spare cash when a child is two. It's about families struggling with their monthly budgets and haven't socked away alot of cash in their entire lives.
I think Yonah's suggestion are for the lucky ones who can put away money before a baby is born or while he/she is young. Then the question would be if this is the best place to put a tuition nest egg.
If it looks like tuition & smells like tuition then it is tuition. There's no getting around it.
Do you think that the IRS would beleive in an argument to allow a tax deduction for a "required" contribution which is really just tuition in-disguise?
i hear stories like this all the time. The point is unless the IRS asks very very specific questions there is no way to know this and that's what people are counting on...
Take the school dinner for example- isn't this a "donation". but it's a required donation. you'll say you must deduct value of dinner
but no one does (except CPAs). also if you pay for kiddush club- that's tax deductable but you get a kiddish each month (or whenever).
I believe that people do the dinner "donation" because they just go along with the rest of the crowd. If you wanted to really be a stickler, you could tell the school that you are not paying it. If they give you a problem then you could go to the IRS and they could lose their status as an IRS approved Charity.
Nonetheless, the dinner is only $500 usually and not a big deal. And for those people who choose not to deduct the value of the meal, they can always claim ignorance later.
However, once you start talking about taking a 1/3 or 1/2 of tuition and start calling it "required charity", you are stepping on shaky ground. The school could lose its charity status if it actually endorses and allows this. The individual will be taking a big risk that if (when?) the IRS audits them that they will find it.
Furthermore, once the IRS finds one person who is "cheating" in this manner, they will go to the school directly and get a list of all attendees doing this. This is exactly what they did with Mastercard and Visa when people were trying to hide foreign income by opening foreign credit cards.
Do me a favor, get me a list of which schools are actually doing this. I'd love to know which school actually allows this.
There are a whole lot of schools that do this - pick any school in manhattan, westchester, and a handful in jersey. I am sure that their accountants and advisers, who probably have significant amounts of experience with the IRS have positioned this in such a way that it is well within the letter of the law. Again, you have an advantage over me because you are a CPA.
To your point about the dinner - yes, you are 'supposed' to deduct the cost of the dinner, but that applies to any fundraiser, and again if the IRS began to enforce it, it would have to scrutinize anyone who paid any amount of money towards any fundraiser - not something that the IRS wants to do (same thing with dinner ads, raffles and chinese auctions).
From a very lay perspective - the general rule of thumb is that I cannot be deriving benefit from my donation, well what about Chaim Moneybags that donates above and beyond to his kids school - i.e. He pays the full four tuitions, and then gives another $100K or $50K as well. Will his kids not get preferential treatment in disciplinary matters? Will his kids not get treated with kid gloves by teachers? That seemingly conveys a benefit too. If we start to scrutinize the 'mandatory' donations then, in theory, any donation give by someone who has a child or grandchild in the school should be considered suspect and a possible conflict of Interest.
I imagine, if a client of yours came in with a 'reccomended/required' donation to the school, that you would reccomend that they forgo the deduction?
Or how about Shul Membership? To become a member of your shul, you are required to pay a specific fee to the synagouge, in the form of a donation. Are you not allowed to deduct shul membership?
Just to clarify these schools hand you a packet that includes:
1. A bill for tuition, say $10K
2. Several notes, that ask you to promise to contribute to the school's building fund, scholarship fund, etc. Let's say building fund is a lump sum of $4500 per family, payable over the first three years you have a child in school. Then there is a $2500 scholarship fund per child.
The building fund money stays in one account, and goes towards rebuilding or building a new building - this fund is above and beyond the facilities maintenance / capital expenditures taken out of the tuition costs.
The scholarship money goes into a pool that is used for people who are truly less fortunate, and need the money (Hopefully, although we all think we are that needy, I hope that none of us really are).
The donations are in a sense treated to membership of a congregation, or other charitable org. They are a fixed amount, but because there is no direct benefit derived from it, there should be no questions that this should be just as tax deductible as say, a donation to your local PBS station or Zoo that conveys membership rights, or the membership cost of a religious congregation.
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There's something strange about being required to donate. I guess the IRS is ok with that.
The shul membership/dinner situation sounds like a loophole (after deducting the price of the meal). I suppose it's like taking deductions for your business. For example, you can take a trip to Hawaii and as long as you did something work related the whole trip is deductable (i'm not a cpa so ask a cpa what would qualify.) This was one of the main points of the Rich Dad/Poor Dad book.
Posted: Thu May 19, 2005 11:15 am Post subject: tax
Shul membership is always tax deductible. You aren't "getting" anything for it--just contributing to a religious organization. School tuition, on the other hand--you are getting your children's education, same as if you sent them to a non-religion-based private school.
The average return on stock index funds is over 10% a year over the long term. But the problem is that you cant guarantee that rate during a certain 3 year stretch. Historically over any 10 year stretch you can get this...
Shul membership:
Quote:
You aren't "getting" anything for it
You are your getting a seat and depending on your synogague you may also be getting a discounts for special dinners and other events.
Posted: Thu May 26, 2005 11:40 am Post subject: Re: tax
liane wrote:
Shul membership is always tax deductible. You aren't "getting" anything for it--just contributing to a religious organization. School tuition, on the other hand--you are getting your children's education, same as if you sent them to a non-religion-based private school.
Liane, most people are deriving benefit from it in one of the following forms:
- Discounted high-holiday seating
- Discounts to any event that has a 'members' price different from the regular price.
But in truth, this applies to any non-profit that gives you a 'gift' or 'membership' benefit for donating a specific amount. For example, if I donate $75 to my local PBS station I can get a bert and ernie doll. Or, even better than that, if I donate $150 to a local kids museum and become a member, I can get free access to 100 other kids museums around the country. Let's say I go to 10 of those museums and save myself $100 on admission charges.
You also cannot deduct any fixed amount you may be required to pay in addition to the tuition fee to enroll in a private school, even if it is designated as a “donation.”
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