Question

Ramon has decided to make a cash gift to the American Heart Association of $113,000. 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 delaying the gift until next year. For purposes of this analysis, ignore the potential impact of the overall limitation on certain itemized deductions.

A. Total present value of tax savings from the tax deduction if made this year: $
B. Total present value of tax savings from the tax deduction if made next year: $ 34,113

Please solve for A

Answer 1

Present value of cash flow is discounted value of the future cash flow at given rate of interest.

PV factors are used to find present value of cash flows

As given in question solving A :

A. Total present value of tax savings from the tax deduction if made this year

Tax savings = Cash gift to the American Heart Association of *tax rate

=$113,000*24%

=$27,120

Present Value of tax savings

=$27,120*PV factor at 6% 1 year

=$27,120*0.9434

=$25,585.008

Answer 2

For Part A:

60% limitation x 180,000 AGI = 108,000

108,000 x 24% tax bracket (to calculate tax savings) = 25,920

25,920 x 1.0000 present value = 25,920

Remainder: 113,000 - 108,000 = 5,000 carryover to next year

5,000 x 32% tax bracket (for tax savings) x Present Value of 1 year (.9434) = 1,509

25,920 + 1,509 = 27,429