The Cost of Making a Gift

What does the charitable deduction really mean?    

     

The Situation:

Ben A. Factor is ready to make a $20,000 outright gift to your organization. He has a choice between writing a check from a savings account and gifting a stock he's held for many years, currently valued at $20,000 but originally purchased for $3,000 (this is his cost basis).

What is the difference to Ben's bottom line if he:

1. Writes a check for $20,000
2. Gifts the stock, or
3. Sells the stock and gifts the proceeds?

Let's take a look at the different potential outcomes:

	CASH	STOCK	STOCK SALE PROCEEDS
Value of Gift	$20,000	$20,000	$17,450
Charitable Deduction	$20,000	$20,000	$17,450
Marginal Tax Bracket	28%	28%	28%
Income Tax Saved	$5,600	$5,600	$4,886
Cost of Gift	$14,400	$14,400	$12,564
Capital Gain	- 0 -	$17,000	$17,000
Capital Gains Tax “Avoided”	- 0 -	$  2,550	- 0 -
Capital Gain Tax Paid…	- 0 -	- 0 -	$2,550
Net Cost of Gift	$14,400	$11,850	$12,564