Question

Ramon had AGI of $180,000 in 2018. 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.

d. 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%. 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. See Appendix G for the present value factors, and assume a 6% discount rate.

                     

Answer 1

As per the tax provisions, the cash donation has generally a specific limit. If the donation amount exceeds 50% of AGI, the deduction in current year would be limited to 50%. The excess amount over 50% would be allowed as deduction in the next year.

Both the given situations are compared below from tax point of view.

Situation 1: If donation is made in current year

As AGI in current year is $180000, the donation would be limited upto $90000. Therefore the excess of $23,000 would be adjusted against income of next year. Therefore the tax savings would be as follows (calculated in present value terms):

Year	Deduction allowed	Rate of tax	Tax savings	PVF @ 6%	Present value of tax savings
Current yr	90000	24%	21600	1	21600
Next yr	23000	32%	7360	0.94	6943.40
				TOTAL	28543.40

Situation 2: If donation is made in next year

As AGI is 300,000, cash donation upto $150,000 can be allowed as deduction in current year. Therefore the total donation of $113,000 would be allowed as deduction in current year. Therefore the tax savings would be as follows (calculated in present value terms):

Year	Deduction allowed	Rate of tax	Tax savings	PVF @ 6%	Present value of tax savings
Next yr	113000	32%	36160	0.94	34113.21
				TOTAL	34113.21

Therefore, the total tax savings in present value terms would be $5569.81 (34113.21-28543.4).