Julieta Simms is the president and sole shareholder of Simms Corporation (a cash method, calendar year C corporation). Julieta plans for the corporation to make a charitable contribution to the University of Washington, a qualified public charity. She 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. Julieta projects a $310,000 net profit for Simms Corporation in 2019 and a $100,000 net profit in 2020. Julieta calls you on December 12, 2019, and asks whether she should make the contribution in 2019 or 2020.

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

For the present value computations, assume a 5% discount rate and the following present value factors: for 2020, 0.9524; for 2021, 0.9070; for 2022, 0.8638.

If required, round your computations to the nearest dollar.

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

December 19, 2019

Ms. Julieta Simms, President Simms Corporation 1121 Madison Street Seattle, WA 98121

Dear Ms. 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 2019 .

If the corporation makes the contribution in 2019, it can deduct $ 25,000 as a charitable contribution, which will save $ 9,750 x in Federal income tax. However, if the corporation makes the contribution in 2020, the percentage limitations applicable to corporations will limit the 2020 deduction to $ 10,000 . The corporation will save $ 1,000 x in taxes as a result of this deduction. The corporation may carry the remaining amount forward for up to 5 years or until exhausted. If the corporation continues at the 2020 profit level for subsequent years, it would be able to deduct $ 11,000 X of the carryover in 2021 and the remaining $ 1,000 X of the carryover in 2022. The deduction of the s carryover amount would result in an additional tax savings of $ for a total tax savings of $ Although this analysis indicates that the corporation will save $ regardless of the year of the gift, the present value of the deductions must also be considered. If the contribution is made in 2019, all the savings will occur in 2019, resulting in a present value of $ for the deduction. If the corporation makes the contribution in 2020, its tax savings will be split among several years. Based on the earlier profit assumptions and a 5% discount rate, the present value of a contribution in 2020 would be $ . Thus, a contribution in 2019 would result in a present value tax savings of My advice is that the corporation should make the contribution immediately so that ownership of the stock can be transferred by December 31 If the corporation makes the contribution in 2019, it can deduct $ 25,000 as a charitable contribution, which will save $ 9,750 x in Federal income tax. However, if the corporation makes the contribution in 2020, the percentage limitations applicable to corporations will limit the 2020 deduction to $ 10,000 . The corporation will save $ 1,000 x in taxes as a result of this deduction. The corporation may carry the remaining amount forward for up to 5 years or until exhausted. If the corporation continues at the 2020 profit level for subsequent years, it would be able to deduct $ 11,000 X of the carryover in 2021 and the remaining $ 1,000 X of the carryover in 2022. The deduction of the s carryover amount would result in an additional tax savings of $ for a total tax savings of $ Although this analysis indicates that the corporation will save $ regardless of the year of the gift, the present value of the deductions must also be considered. If the contribution is made in 2019, all the savings will occur in 2019, resulting in a present value of $ for the deduction. If the corporation makes the contribution in 2020, its tax savings will be split among several years. Based on the earlier profit assumptions and a 5% discount rate, the present value of a contribution in 2020 would be $ . Thus, a contribution in 2019 would result in a present value tax savings of My advice is that the corporation should make the contribution immediately so that ownership of the stock can be transferred by December 31