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?

To have their itemized deductions exceed the standard deduction

.

Feedback

In most cases, the choice between using the standard deduction and itemizing deductions from AGI is a simple matter-pick whichever yields the larger tax benefit. However, taxes might be saved by alternating between the two options by tax planning.

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 $.

Feedback

Partially correct

c. Fill in the blank of the 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 45040November 22, 2017Mr. and Mrs. Tom Bates

8212 Bridle Court

• Reston, VA 20194Dear 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 thecash
• basis, all cash expenditures during a yearwill
• be evaluated in determining deductibility. In this case, combining the three $4,000 contributions into a single yearmakes
• sense from an income tax perspective.
• By combining all three payments in 2017, you will be able toitemize your deductions
• in that year, whileusing the standard deduction
• 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 havetotal itemized deductions
• 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

Feedback

Partially correct

Feedback

Partially correct

The answer is not 1450 or 1350 - I cannot seem to figure this out.