Dan Simms is the president and sole shareholder of Simms Corporation. Dan plans for the corporation to make a charitable contribution to the University of Washington, a qualified public charity. He will have the corporation donate Jaybird Corporation stock, held for five years, with a basis of $11,000 and a fair market value of $25,000. Dan projects a $310,000 net profit for Simms Corporation in 2014 and a $100,000 net profit in 2015. Dan calls you on December 12, 2014, and asks whether he should make the contribution in 2014 or 2015.
Complete the letter advising Dan about the timing of the contribution.
Note: If required, round computations to the nearest dollar.
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Hoffman, Raabe, Maloney, Young, & Smith, CPAs
5191 Natorp Boulevard
Mason, OH 45040
December 17, 2014
Mr. Dan Simms, President
Simms Corporation
1121 Madison Street
Seattle, WA 98121
Dear Mr. Simms:
On December 12 you asked me to advise you on the timing of a contribution by Simms Corporation to the University of Washington. My calculations show that the corporation will maximize its tax savings by making the contribution in Select201320142015Item 1 .
If the corporation makes the contribution in Select201320142015Item 2 , it can deduct $ as a charitable contribution, which will save $ in Federal income tax. However, if the corporation makes the contribution in 2015, the percentage limitations applicable to corporations will limit the 2015 deduction to $ . The corporation will save $ in taxes as a result of this deduction. The corporation may carry the remaining $ forward for five years or until exhausted. If the corporation continues at the 2015 profit level, it will save an additional $5,100, for a total tax savings of $8,500.
This analysis makes it clear that the corporation will save $ more if it makes the contribution in Select20142015Item 9 . In addition, all of the savings will occur in Select20142015Item 10 . If the corporation makes the contribution in Select20142015Item 11 , its tax savings will be split among several years. My advice is that the corporation should make the contribution Selectimmediatelyin 2014Item 12so that ownership of the stock can be transferred by SelectJanuary 1December 31Item 13 .
Sincerely,
Alicia Gomez, CPA