On Tuesday, in the wake of a tornado that hit the city of Moore, Oklahoma and took at least 24 lives, Oklahoma City Thunder star Kevin Durant donated $1 million to the Red Cross to aid relief efforts.
That's a lot of money, in case you're someone who's unfamiliar with the concept of money. And even for a guy like Kevin Durant, who makes the maximum salary allowed by the NBA at this point in his career plus a supertanker's worth of endorsement money, it's still significant. According to Forbes' most recent ranking of the world's highest-paid athletes — a list on which he placed #34 — Durant made $25.5 million from June 2011–June 2012, $12.5 million of it from his basketball salary and $13 million from his endorsements. (Both of those numbers certainly went up for June 2012-2013, but let's stick with the completed fiscal year.) And because Durant's 24 years old and has only been on a big contract for a couple years, it's unlikely that he has either an enormous amount of money in the bank or is making a lot from investments or interest on savings yet.
So did Durant just sit down and write a check with six zeroes?
Basically, yes, said Mitchell Halpern, director of Sports and Entertainment Accounting Services at O'Connor & Drew in Boston, except it was his foundation writing the check. But that still means the foundation had $1 million to give, which it either raised in his name (through, say, auctions of signed memorabilia) or was given directly by Durant.
Since Durant will get a tax deduction for the donation, how much will it ultimately set him back? "Let's assume he did it directly, for a second," Halpern said — as in, assume Durant gave a million dollars to his own foundation, who then gave a check for the same amount to the Red Cross. "When he does his tax return" — federal, not state; it's hard to know exactly what Durant's state-tax situation is — "with today's tax brackets, he's well into the top bracket of 39.6%. There are a lot of assumptions to be made, but he will essentially get a tax deduction of $1 million, which translates, if he has $25 million income, into $24 million left of taxable income. The rate on that last million is 39.6%. That's reducing his tax obligation by $396,000. So, the million-dollar deduction ultimately is costing him $610,000."
Halpern clarified that the Red Cross is still receiving $1 million; it's just coming at an expense of about $610,000 to Durant, which is the government's way of encouraging charitable donations.
For perspective: let's assume that Durant paid about 40% of his income last year in various federal and state taxes. Someone who makes $50,000 probably pays about 25% of their income in taxes, all-considered. (PLEASE do not argue about taxes in the comments, unless it's to correct our math.) Durant's donation, as a portion of the income that Durant actually saw last year, is roughly the equivalent of someone who makes $50,000 up and writing a Red Cross check for about $2,000, of which they'd get $500 back at the end of the year after taking the cost of the donation off their taxable income. ($50,000 is about the median household income in the U.S.) Alternately, our hypothetical $50,000 earner could work to put together $2,000 through fundraising, since it's possible Durant's foundation already had the cash on hand from previous efforts — which he would've been involved in, of course.
Put even simpler, Durant's donation is just as generous as it first appears — maybe even more so.