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 |