50.1K

Verified Solution

Link Copied!

Each year, Tom and Cindy Bates $($married filing jointly$)$ normally have itemized

deductions of $$22,000($which includes an annual $$4,000$ pledge payment to their church$).$ On the advice of a friend, they do the following: In early January $2022,$ they pay their pledge for $2021$; during $2022,$ they pay their pledge for $2022$; and in late December $2022,$ they prepay their pledge for $2023.$

Question Content Area

a$.$ What are the Bateses trying to accomplish?

To have their itemized deductions exceed the standard deduction

$.$

Feedback Area

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.

Question Content Area

b$.$ What would the Bates' total itemized deductions be if all three church pledge payments were made in $2022?$ Assume that the itemized deductions of $$22,000$ already included one year of the church pledge payments.

$$30,000$

What will be the Bates' tax savings if their marginal tax bracket is $24\%$ for all three years?

$($Assume that the standard deduction amounts for $2022$ and $2023$ are the same.$)$

By concentrating their charitable contributions, their tax savings becomes $$1,248$ X

$.$

Feedback Area

Feedback

Partially correct

Question Content Area

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

SWFT$,$ LLP

$5191$ Natorp Boulevard

Mason, OH $45040$

November $22,2022$

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 $2021,2022,$ and $2023$ into a single year $(2022),$ here is a brief summary of the outcomes:

As individual taxpayers are presumed to be on the

cash basis

$,$ all cash expenditures during a year

will

be evaluated in determining deductibility. In this case, combining the three $$4,000$ contributions into a single year

makes

sense from an income tax perspective.

By combining all three payments in $2022,$ you will be able to

itemize your deductions

in that year, while

using the standard deduction

in $2021$ and $2023.$

These $$8,000$ of additional contributions in $2022($the $$4,000$ payments for $2021$ and $2023)$ will mean that you will have

total itemized deductions

of $$30,000$

$.$

Your tax savings by consolidating these contributions in $2022$ will be $fill in the

$1,248$ X

$.$

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 & Explanation Solved by verified expert

See Answer