Question

Problem 10-36 (Algorithmic) (LO. 6, 8)

In December 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 $142,600 (2) Unimproved land held for six years ($21,390 basis) $142,600 (3) Blue Corporation stock held for eight months ($21,390 basis) $142,600 (4) Gold Corporation stock held for two years ($171,120 basis) $142,600

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.

Determine the amount of the charitable contribution for each option.

Answer 1

I think Eleanor can opt for following best possible way to save tax and contribute to United Way.

As above

As above :

1)Cash donation – straight way 24% margin Tax on Fair Market value ^=$ 142600 = No benefit

2) Unimproved Land held for 6 years – will bring Long term capital gain – No benefit

3) Blue corporation stock help for 8 months – will bring Short term capital Gain- No benefit

4) Only best option is left out , Gold Corporation – Why?

Sale proceed value is greater than bas Fair Market value ( Sales proceed -$ 171120 and Fair Market value -$142600)

We will address capital loss here amount to $28520. Sale proceeds amount Eleanor can give it to United Way and rest capital loss Eleanor can claim maximum $ 3000 as current year capital loss and balance amount carry forward in next year to set off against Capital Gain

As above :

1)Cash donation – straight way 24% margin Tax on Fair Market value ^=$ 142600 = No benefit

2) Unimproved Land held for 6 years – will bring Long term capital gain – No benefit

3) Blue corporation stock help for 8 months – will bring Short term capital Gain- No benefit

4) Only best option is left out , Gold Corporation – Why?

Sale proceed value is greater than bas Fair Market value ( Sales proceed -$ 171120 and Fair Market value -$142600)

We will address capital loss here amount to $28520. Sale proceeds amount Eleanor can give it to United Way and rest capital loss Eleanor can claim maximum $ 3000 as current year capital loss and balance amount carry forward in next year to set off against Capital Gain ( $28250-$3000= $25250)