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Posted April 30th, 2018

Solutions to a Math (Choke) Lesson in Gift Planning

We left off last time with a challenge to you, the reader, to solve a problem and also to check your solution.

The problem is a real-world gift planning problem. In terms of difficulty, it’s a simple first-year algebra problem

The solution of n, the number of shares to be donated, is given to be: n = 3,000/110, rounded to the nearest whole share. The easy way to solve for n is to do what the writer did. Which is to open up an Excel spreadsheet, format the spreadsheet to calculate to the nearest whole number (0 decimal places) and to type in a cell (any cell will do):

=3,000/110,

which returns 27. This means we’ve calculated the whole number of shares to be donated to be 27.

Now, in solving math problems, it’s often advisable to check your answer. To check the answer 27, we need to grasp that the answer was obtained by setting the tax savings generated by the number of shares donated (0.4n$200) equal to the capital gain tax generated by the number of shares sold [0.2(100 – n)($200 – $50)].

If we plug in 27 for n, we get $2,182 for the charitable deduction tax savings and $2,182 for the capital gain tax generated.

That is what we want. Checking shows that 27 is the correct answer for the number of shares to donate. (Important Note:  Depending on how you “plug in 27 for n,” you may get slightly different numbers. For consistency, the writer performed all calculations using the same Excel spreadsheet. The slight difference in numbers has to do with how Excel rounds a number with a decimal part to the nearest whole number.)   

Now if this were a real, live case, we’d face the fact that the value of the donor’s stock, assumed here to be $200 per share, likely would be bouncing around day to day. To make our lives easy, we could create an Excel spreadsheet that would perform all the calculations we want based on whatever value we entered for the stock’s value.

Hope this is helpful.

by Jon Tidd, Esq

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