Taxation of Estates and Gifts

Time-Money Value

Money is worth more now than in the future. Money can be invested and grow via compound interest.

The higher the interest rate, the more valuable present money will be worth because it will take less long for the money to grow.

To calculate the value of money now versus money later without doing any math, just look at Table B.

  • Although, the math is very simple:
    • 4% interest for 4 years, compounding annually ends up 1.4802 times as much as the capital
      • 1.0410 = 1.4802
      • $5000 × 1.4802 = $12,326
        • After 10 years at 4%, $5000 would become $12,326
    • To find the starting capital needed for a certain amount, just divide instead:
      • $12,326 ÷ 1.4802 = $5000