On December 30, you decide to make a $1,500 charitable donation. (Assume you ite

Question

On December 30, you decide to make a $1,500 charitable donation. (Assume you itemize your deductions.) (a) If you are in the 28 percent tax bracket, how much will you save in taxes for the current year? Tax savings for the current year (b) If you deposit that tax savings in a savings account for the next five years at 3 percent, what will be the future value of that account? Use Exhibit 1-A. (Round time value factor to 3 decimal places and final answer to 2 decimal places.) Future value of tax savings

Explanation / Answer

Part A

Tax savings for the current year = 1500*28% = 420

Part B

Future value of tax savings = tax savings * future value factor = 420 * (1.03)^5 = 420*1.159 = 486.78

Tax savings for the current year $420

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