Present Value Calculation for Salary Continuation

1. Business value is $3 million; cost basis of $500,000

2. Owner receives $100,000 annually for 15 years as part of deferred compensation agreement

3. Apply Applicable Federal Rate (AFR) for valuation purposes

(5.2 percent AFR)]

4. Reduces $3 million business to $1.975 million

5. $221,388 capital gains tax ($1,975,924 == $500,000 X 15%)