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Example:
John and Sarah Fox purchased 100 shares in XYZ
Corporation in 1982 at a cost of $2,000. Today the shares are worth $10,000
and pay less than 2% in annual dividends.
If the Foxes sold the stock, they would realize an
$8,000 capital gain. Because they have held the securities long-term (for
more than one year), they would owe as much as $1,660 in federal capital
gains tax on the sale. More could be due in state taxes as well, depending
on where they live. The Foxes have made a pledge to their ministry's
funding campaign of $10,000 per year for three years. Normally they make
their annual contributions in the form of cash.
Let’s look at that option and two alternatives. |
|
First Installation 2002 |
Option A Give $10,000
In Cash |
Option B
Sell Securities
& Give Cash |
Option C
Give Securities
Outright
|
|
Gift Value
|
$10,000 |
$10,000 |
$10,000 |
|
Ordinary Income
Tax Savings, assuming 38.6%
Tax Rate |
$3,860
|
$3,860
|
$3,860
|
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Capital Gains Tax Saved or Paid, assuming a 27.5%
Blended Tax Rate
|
N/A
|
$2,200
paid
|
$2,000
saved
|
|
Net Tax Savings |
N/A
|
$1,660 |
$6,060 |
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Note that in their tax bracket, the Foxes would realize tax savings of
$3,860 by making gifts of cash. The least desirable alternative would be to
sell the stock and give the proceeds, as the payment of the capital gains
tax would reduce their net tax savings to just $1,660. If they instead made
their gifts in the form of the XYZ stock with a cost basis of $2,000, they
would completely avoid capital gains tax and their combined tax savings
would increase to $6,060, some 40% greater savings than if they made their
gifts in the form of cash.
The
examples and information on this page are for illustrative purposes only
and should not be considered tax or legal advice. These numbers are
based on IRS tax codes prior to the August 1, 2003 tax code changes. Please consult with your
tax or legal advisor before proceeding with your estate plans. |
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St.
Luke Foundation