X-Message-Number: 15991
From: 
Date: Mon, 2 Apr 2001 16:09:01 EDT
Subject: Leverage for cryonics contributions

Hello All:

Various organizations are soliciting donations now, and I want to let you 
know of a method that lets you give with great leverage.  That is, some 
people, if they do it right, can give three or even eight dollars at a cost 
of one.  There is nothing shady about this; it is a standard method well 
known to university fund raisers. Congress set it up on purpose to encourage 
such donations.  (Naturally you shouldn't take my word for it, but check with 
your lawyer or accountant if interested.) Many people may know of it already, 
but just in case some do not, here it is:

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Giving a Lot at a Small Cost to Yourself

Some people are in a high tax bracket, as much as 50% combined Federal and 
State. And some of these people have highly appreciated assets -- such as an 
Internet stock bought for a hundredth its current price or a house bought 
years ago.  This combination allows huge leverage in giving to charities, as 
much as three to one or even eight to one.  That is, it is possible to give 
$100,000 and be only $30,000 poorer for it, or even to be just $12,000 
poorer. 

Here is how one method works:  if you give an appreciated stock you need pay 
no capital gains tax on it yet you deduct the full current value of your 
contribution. (This double break was enacted by Congress specifically to 
encourage giving.)

Suppose John owns $100,000 worth of Yahoo, virtually all of its value 
appreciation. And John is in the 50% bracket. (As you can tell, this was 
written before the Internet bubble burst!)

In Case I he sells the stock and pays a 20% capital gains tax, leaving him 
with $80,000. (Possibly even less if his state taxes it too.)

In Case II he gives the stock to a worthy cause that he supports.  (It must 
be a registered charity, recognized by the IRS.)  He gets a $100,000 tax 
deduction against his other income, and being in the 50% bracket he pays 
$50,000 less in taxes.  So in Case II he has $50,000, or $30,000 less than in 
Case I.  At a net cost of $30,000 he has contributed $100,000 to a cause he 
believes in. This is a 3 1/3 times leverage.

But wait there's more!  John dies leaving a large estate, and the same 
rapacious government that taxed him 50 cents on every dollar he earned now 
taxes his estate at 60% on what's left. (This seems incredible but it's true. 
 I do not support it I just report it.)  So on the $30,000 that he's ahead in 
Case I, he pays $18,000, leaving him ahead just $12,000. He avoids this in 
Case II, and thus manages to give $100,000 at a net cost of $12,000, an 
eight-to-one leverage.

You do not have to be in a high bracket for this to work; in a lower bracket 
you just get less leverage.

Roughly the same thing works if you give real estate, say a house you bought 
in '72 for $60,000 that is worth $800,000 today.  This is the tax treatment 
of any appreciated asset donated to a charity.

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Again, it is not my purpose to give legal advice but only to discuss the law 
as I understand it -- and I'm an engineer not a lawyer.  Law is very 
complicated so you should always ask your lawyer about such things.  Nor am I 
telling you to give to any particular cause.   But this is something you 
should know about if you want to give to any cause, cryonics related or 
otherwise.  No sense giving to the tax collector when you can give to a good 
purpose instead!

Alan Mole

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