Money In The Bank

Warren Buffett chose to invest $5 billion in Bank of America instead of the bank that is America, the United States Treasury.

The Wise Ass (Oops) Oracle of Omaha was challenged by Pat Buchanan to set an example and send a check for $5 billion to the federal government, after Buffett complained about being under taxed.

Financial Management Services, a bureau of the Treasury Department, accepts unconditional gifts "from individuals wishing to express their patriotism to the United States."

If Buffett doesn't want to write a check to the Treasury, Credit Accounting Branch 3700 East-West Highway, Room 622D
Hyattsville, MD 20782, he could voluntarily quit taking so many tax deductions.

And the scientific community is united in that fact.

A CPA found that for Buffett's 2010 tax return he uses the maximum 30% charitable contribution deduction each year – for appreciated property – and he has a $10 billion carryover of charitable contributions for subsequent use too.

Buffett’s 30% charity tax deduction offsets his entire ordinary income, and next it offsets his lower long-term capital gains income. Hence, he pays approximately 15% long term capital gains tax rates only, and – as he likes to say – it’s a lower tax rate than others in his office pay.

Without that charitable tax deduction of appreciated shares wiping out his ordinary income, Buffett would pay the same tax rate as others on his wages and other ordinary income too.

Buffett also avoids nasty alternative minimum taxes (AMT) of 28%.

The charity tax deduction seems to save Buffett around $3.3 million of federal income taxes each year.

Much bigger tax savings comes from the estate tax currently at 35%. Buffett’s approximate $10 billion-plus of charity times 35% equals more than $3.5 billion of one-time estate tax savings.

Buffett’s double-dip tax loophole of donating appreciated shares to charity also saves him 15% long-term capital gains taxes on the embedded capital gains in the shares he donates.

For discussion purposes, assume that appreciation is approximately $20 billion, and that would save him another $3 billion in income taxes.

The total, for 2010, donated to the United States Government to reduce debt held by the public was $2,840,466.75.

Buffett should be interested to note that payments to specifically help reduce the government's debts are tax-deductible.