Your client, Mr. and Mrs. Smith, have asked you about making a $120,000 cash charitable contribution...

Your client, Mr. and Mrs. Smith, have asked you about making a $120,000 cash charitable contribution to their church. They have heard that the new tax law has changed some of the rules about itemized deductions and charitable contribution limits, but they don’t know the details. They have provided you with their expected adjusted gross income (before any itemized or standard deduction) for 2018 which will be $100,000. Their AGI for 2019 will be $50,000 because Mr. Smith is retiring at the end of 2018. They have no other itemized deduction expenses in 2018 and expect none in 2019.

1)Explain to your manager how this contribution will be deducted on the client’s return in 2018 and 2019 and any future years if applicable ,List the code section that applies to charitable contribution limitations

2)List the code section that applies to charitable contribution limitations

Solutions

Expert Solution

1. Solution/Answer:

Cash contribution to church = $120,000

Rteurn filing status = Married filing jointly

Return filing year - 2018

Adjusted gross income (AGI) = $100,000

Standard deduction for the year 2018 applicable to married couple filing jointly = $24000

When you donate cash to a church registerd under 501(c)(3), you can generally deduct up to 60% of your adjusted gross income.

The carry forward rules allow donors who contribute more than 60% of AGI in a single year to carry forward the excess part of the gift/donation as a deduction for the next five years.

So the donation that can be taken as itemized deduction in the year 2018 = $60,000 (restrcted to 60% of AGI)

Remaining donation of $60,000 ($120000- $60000) can be carry forward to next 5 years.($12000 per year)

Return filing year - 2019

You can claim the deduction of $12000 as a carry forward deduction in the year 2019.

2. Solution/Answer:

Code section that applies to chartitable contribution limitations:

26 U.S. Code § 170 - Charitable, etc., contributions and gifts

(Please refer to https://www.fidelitycharitable.org/guidance/tax-strategies/charitable-tax-deductions.shtml to know your tax brackets or other details)

Hope this is useful and thank you!!!!!!!

ekkarill92 answered 1 year ago

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