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Tax Benefits Illustration

 

Example: The Browns own stock that they purchased several years ago for $2,000 that is now worth $10,000. They want to establish an endowment for the benefit of missions and are considering whether to give cash or the stock. Their advisor told them that, based on their 28% income tax bracket, they would have to pay a 15% federal capital gains tax on the $8,000 increase in value should they sell the stock.

 

The following chart shows the net results for three options the Browns have for funding their endowment:

 

 

Option1

Give $10,000

Cash

Option 2

Sell Stocks, Pay Tax,

Give Balance

Option 3

Give Stock

Cash/Stock Value $10,000 $10,000 $10,000 

Capital Gains Tax

Saved or Paid

N/A  $1,200 Paid $1,200 Saved 

Ordinary Income

Tax Saved

$2,800  $2,464  $2,800
Net Tax Savings $2,800  $1,264  $4,000

Net Given

to Endowment

$10,000  $8,800  $10,000

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