Question

Problem 3-52 (LO. 9)

Each year, Tom and Cindy Bates (who file married-filing jointly) report itemized deductions of $10,000, including an annual $4,000 pledge payment to their church. Upon the advice of a friend, they do the following: In early January 2017, they pay their 2016 pledge; during 2017, they pay the 2017 pledge; and in late December 2017, they prepay their 2018 pledge.

a. What are the Bateses trying to accomplish?
.

b. What would the Bates' total itemized deductions be if all three church pledge payments were made in 2017? Assume that the itemized deductions of $10,000 already included one year of the church pledge payments.
$

What will be the Bates' tax saving if their marginal tax bracket is 25% for all three years?

(Assume that the standard deduction amounts for 2017 and 2018 are the same.)

By concentrating their charitable contributions, their tax savings becomes $.

c. Complete a letter to Tom and Cindy Bates (8212 Bridle Court, Reston, VA 20194) summarizing your analysis.

Maloney, Hoffman, Raabe, & Young, CPAs
5191 Natorp Boulevard
Mason, OH 45040

November 22, 2017

Mr. and Mrs. Tom Bates
8212 Bridle Court
Reston, VA 20194

Dear Mr. and Mrs. Bates:

In response to your inquiry regarding the Federal income tax consequences of consolidating your charitable contributions for 2016, 2017, and 2018 into a single year (2017), here is a brief summary of the outcomes:

As individual taxpayers are presumed to be on the basis, all cash expenditures during a year be evaluated in determining deductibility. In this case, combining the three $4,000 contributions into a single year sense from an income tax perspective.

By combining all three payments in 2017, you will be able to in that year, while in 2016 and 2018.

These $8,000 of additional contributions in 2017 (the $4,000 payments for 2016 and 2018) will mean that you will have of $.

Your tax savings by consolidating these contributions in 2017 will be $.

If I can be of further assistance to you in this matter, please do not hesitate to contact me.

Sincerely,

Heywood R. Floyd
Partner

Answer 1

a. They are trying to claim deduction of all three years in current year of $ 4000 x 3 = $ 12000

b. For 2016 and 2018: $ 10000 x 25% = $ 2500

For 2017: $ 22000 x 25% = $ 5500

c.

As individual taxpayers are presumed to be on the cash basis, all cash expenditures during a year 2017 be evaluated in determining deductibility. In this case, combining the three $4,000 contributions into a single year make sense from an income tax perspective.

By combining all three payments in 2017, you will be able to deduct 5500 in that year, while 2500 in 2016 and 2018.

These $8,000 of additional contributions in 2017 (the $4,000 payments for 2016 and 2018) will mean that you will have savings of $ 2000

Your tax savings by consolidating these contributions in 2017 will be $ 2000