Story:
Oliver and Jack started a car wash business together ten years ago. During this time, they have continued to grow and now own forty-three car washes in Florida. In the previous five years, they started offering a monthly subscription to their car wash, which has created a steady and predictable income each year. They now realize how much taxes cut into their yearly profits and have reached out to a tax strategist to see their options for increasing their after-tax income.
Situation:
Oliver and Jack will have a taxable income of $10,000,000 in 2022. They will owe 40.8% in federal and state income tax, resulting in a tax obligation of $4,080,000. They decided to utilize a leveraged charitable deduction strategy with a $600,000 buy-in. This strategy creates a $3,000,000 charitable donation. They chose to use the entire $3,000,000 charitable donation in 2022.
Result:
The leveraged charitable deduction strategy will reduce Oliver and Jack’s taxable income from $10,000,000 to $7,000,000. Their tax savings will equal $1,224,000, with a net gain of $624,000. By utilizing the leveraged charitable deduction strategy, Oliver and Jack increased their after-tax income by $624,000.