In December of each year, Eleanor Young contributes 10% of her gross income to the United...

In December of each year, Eleanor Young contributes 10% of her gross income to the United Way (a 50% organization). Eleanor, who is in the 24% marginal tax bracket, is considering the following alternatives for satisfying the contribution.

	Fair Market Value
(1) Cash donation	$23,000
(2) Unimproved land held for six years ($3,000 basis)	$23,000
(3) Blue Corporation stock held for eight months ($3,000 basis)	$23,000
(4) Gold Corporation stock held for two years ($28,000 basis)	$23,000

Eleanor has asked you to help her decide which of the potential contributions listed above will be most advantageous tax-wise. Evaluate the four alternatives and complete a letter to Eleanor.

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Expert Solution

To: Eleanor Young

Date: December 4^th 2018

Sub: Tax advantage of potential contributions

Hello Mrs. Young,

I have analyzed your alternatives that you have for satisfying your contribution requirements. From my analysis and evaluation I suggest that you should sell the Gold Corporation stock and donate the proceeds to the United Way.

This is because in case of donation of cash, the land or the Gold stock there will be a charitable contribution deduction to the tune of $23,000. On the other hand donation of the Blue Corporation stock will lead to a mere $3,000 charitable contribution deduction. Also a direct contribution of Gold Corporation stock is not advised as it will not lead to any tax deductions for the decline in value (from 28,000 to 23,000).

The best alternative in front of you is to sell the Gold stock and give the $23,000 proceeds to United Way. The donation of this proceed will lead to a $23,000 charitable contribution deduction. Also the sale will lead to a capital loss of an amount of $5,000 (23,000-28,000). This capital loss can be offset against capital gains of amount of $2,000 or more that you have earned this year. Even if there is no capital gain for this year you can deduct $3,000 of the capital loss this year and carry the remaining $2,000 over to future years.

Please contact me for further clarifications and suggestions.

Best Regards,

Mr. Bill Trump, CPA

ekkarill92 answered 1 year ago

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