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 2015 and a $100,000 net profit in 2016. Dan calls you on December 11, 2015, and asks whether he should make the contribution in 2015 or 2016.

Complete the letter advising Dan about the timing of the contribution.

If required, round computations to the nearest dollar.

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

December 17, 2015

Mr. Dan Simms, President Simms Corporation 1121 Madison Street Seattle, WA 98121

Dear Mr. Simms:

On December 11, 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 year ___________ Item 1.

If the corporation makes the contribution in 2015, it can deduct $ _________ as a charitable contribution, which will save $ ________ in Federal income tax. However, if the corporation makes the contribution in 2016, the percentage limitations applicable to corporations will limit the 2016 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 2016 profit level, it will save an additional $ ______________, for a total tax savings of $ ______________.

This analysis makes it clear that the corporation will save $ ___________ more if it makes the contribution in year ___________. In addition, all of the savings will occur in year ______________. If the corporation makes the contribution in year _________, its tax savings will be split among several years. My advice is that the corporation should make the contribution ___________ so that ownership of the stock can be transferred by ______________ Select either December 31, 2015or March 15, 2016.

Sincerely,

Alicia Gomez, CPA