Story:
Thomas (58) is a cosmetic surgeon who lives in Florida. He has built a chain of cosmetic surgery centers and day spas. His cosmetic surgery centers have made $9,289,800, and the spas have earned $7,400,900 in 2022. Thomas has been working harder than ever for the last four years as he has been increasing the number of cosmetic surgery centers and day spas. His wife is fed up and ready for a divorce because he is never around. Thomas has scheduled every minute of his day with appointments and has been ignoring calls from his financial planner since October. In mid-December, they finally connected. As time is running out for Thomas to complete a transaction by the end of the tax year 2022, he decides to use the leveraged charitable deduction strategy.
Situation:
Thomas will have a taxable income of $16,690,700 for 2022. He will owe 40.8% in federal and state income tax, resulting in a tax obligation of $6,809,805 in 2022. Thomas follows the advice of his financial planner and participates in the leveraged charitable deduction strategy. He selects a $1,000,000 buy-in. This strategy results in a $5,000,000 charitable donation.
Result:
Thomas can reduce his taxable income from $16,690,700 to $11,690,700 in 2022. This will reduce his tax obligation to $4,769,805. The leveraged charitable deduction strategy will result in a net gain of $1,040,000. Based on this additional income, Thomas will take his wife on a four-week cruise, avoiding divorce.