Question

Problem 10-34 (Algorithmic) (LO. 6, 8) Ramon had AGI of $166,000 in 2020. He is considering making a charitable contribution this year to the American Heart Association, a qualified charitable organization. Determine the current allowable charitable contribution deduction in each of the following independent situations, and indicate the treatment for any amount that is not deductible currently. Identify any planning ideas to minimize Ramon's tax liability.

a. A cash gift of $83,000. In the current year, Ramon may deduct $ 83,000 since his charitable contribution is limited to $ 99,600 . Feedback A charitable contribution is defined as a gift made to a qualified organization. The potential charitable contribution deduction is the total of all donations, both money and property, that qualify for the deduction.

b. A gift of OakCo stock worth $83,000 on the contribution date. Ramon had acquired the stock as an investment two years ago at a cost of $74,700. The stock's value for determining the contribution is $ 83,000 . The deduction for 2020 is $ 49,800 . The remaining $ 33,200 can be carried forward for 5 years.

c. A gift of a painting worth $83,000 that Ramon purchased three years ago for $74,700. The charity has indicated that it would sell the painting to generate cash to fund medical research. The contribution is valued at $ 74,700 . The amount deductible in the current year is $ 74,700 . Feedback Correct

d. Ramon has decided to make a cash gift to the American Heart Association of $116,200. However, he is considering delaying his gift until next year when his AGI will increase to $300,000 and he will be in the 32% income tax bracket, an increase from his current-year income tax bracket of 24%. Assume a 6% discount rate. The present value factors, at a 6% discount rate, are as follows: Year PV Factor at 6% 1 0.9434 3 0.8396 5 0.7473 If required, round your final answers to the nearest dollar. Ramon asks you to determine the tax savings from the tax deduction in present value terms if he were to make the gift this year, rather than delay the gift until next year.

Total present value of tax savings from the tax deduction if made this year: $_________

Total present value of tax savings from the tax deduction if made next year: $_________

Answer 1

Answer:

a) In the current year Ramon may deduct $83,000 since his charitable contribution is limited. to $99,600 (166000*60%)

b) The stock value for determining the contribution is $83,000 (fair value). The deduction for 2020 is $49,800 (166000*30%). The remaining $33200 (83000-49800) can be carried forward for 5 years.

c) The contribution is valued at $74,700 The amount deductible in the current year is $74,700. Because it will be sold further hence deduction will be lower of FMV or cost.

d) Present value factor of current year will be 1.0000.
As required assuming ingnorance of overall limitation on certial itemized deduction:

Present value of tax saving in current year after AGI limit (166000*60%)*24%*1	$23,904
Present value of tax saving for deferred part if paid in current year ((116200-99600)*0.98434)*32%)	$5229
Total present value of tax saving tax from the tax deduction if made this year	$29,133
Present value of deduction made next year (116200*32%)*0.9434	$35,079