Question

One of your tax clients, Stan Reid, has sent you various documents that you will use to construct his 2017 tax return. Included in this information is a cancelled check for $1,000 dated December 30, 2017, and payable to his church. The statement he received from the church listing his contributions during 2017 does not list this check. When asked about this discrepancy, Mr. Reid explained that he had made out the check on December 30, 2017, and intended to put it in the church’s collection plate on Sunday, December 31. However, he forgot to do so and instead mailed it to the church the next day. According to Mr. Reid, the church then “wrongly counted it as a contribution for 2018 instead of 2017.” He maintains that since the check was written in 2017 and the contribution was “clearly intended to be for 2017,” it should properly be considered a deductible contribution for his 2017 taxes. Write a letter to Mr. Reid responding to this issue and explaining how his contribution must be treated for tax purposes. Invent any information you feel is necessary to make your letter complete.

Answer 1

Ans. Stan Reid mailed the cheque to church on january 1, 2018. Cheque was dated december 30, 2017. As per stan reid cheque should be deductible contribution for 2017 as his intention was to contribute in 2017. Here stan reid is wrong in his approach. Reason is that actual payment is received by church in 2018. As per tax laws, deduction is accounted for in the period in which payment is actually made. Based on this we can say that church has correctly accounted in the year 2018. However, if payment was deducted from stan reid's account in 2017, then it would have been deductible in 2017. So, Contribution will be deductible in year 2018.