©2015, College for Financial Planning, all rights reserved.

Session 14Charitable Contributions & Alimony Issues

CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMIncome Tax Planning

Session DetailsModule 7Chapter(s)

4 and 5

LOs 7-5 Analyze a situation involving a charitable contribution to calculate the maximum allowable income tax deduction for the current year.

7-6 Identify characteristics of a common provision included in a divorce decree after 1984 tax rules.

7-7 Analyze a situation to determine income tax implications of a divorce decree.

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Maximum Current Year Deductions

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Type of Organization

Type of Property Public PrivateOrdinary Income Property: Cash, STCG, self-constructed, inventory, use-unrelated tangible personalty

50% 30%

Fair Market Value Property: LTCG, use-related tangible personalty

30% 20%

50% Election• Gifts of LTCG property to 50%

organization, ONLY• Can elect to go to 50% of AGI, but MUST

use property’s basis• Example:

o LTCG stock to churcho Stock: FMV—$61,000; basis—$51,000o AGI $100,000

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Normally 50% Election$30,000 current year deduction

$50,000 current year deduction

$31,000 carryforward $1,000 carryforward

Qualifying AlimonyAlimonyTaxable to payee/recipient and deductible by payor• Taxpayers cannot file a joint income tax return

or live together at time of payment.• Payments must be made in cash.• Payments must be received by or for the benefit

of the payee spouse.• Payments cannot extend beyond the death of

the recipient spouse.• If legal document designates payments as

nontaxable and nondeductible, then the payments are NOT treated as qualifying alimony.

• Excess front-loading rules14-5

Common Provisions in a Divorce Decree

Child Support • Nontaxable to payee/recipient• Nondeductible by payorDependency Exemption• Awarded to custodial parent, or parent having

custody of the child for the longer period of time, unless there is a written agreement to the contrary

Property Settlement• Tax-free transfer of property is between spouses

incident to divorce• Transferor’s basis in the property is carried over to

transferee14-6

Review Question 1Kris Swenson anticipates adjusted gross income of $100,000 for the current tax year. She contributed appreciated real estate to her alma mater, Sinton Technological College, a public, nonprofit university. Kris’s adjusted basis in this real estate is $20,000. The real estate has a current fair market value of $50,000. Kris has owned the real estate for 15 years.What is the maximum allowable charitable deduction she can receive in the current tax year for the gift of the real estate?a. $20,000 b. $30,000 c. $50,000

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Review Question 2Kurt Swanson anticipates his adjusted gross income will be $100,000 for the current tax year. He is considering making a gift of appreciated stock to his alma mater, Regis University. His basis in this stock is $48,000. The stock has a current fair market value of $60,000. Kurt has owned the stock for four years.If Kurt gifts the stock to Regis, what is the maximum allowable charitable deduction that Kurt can receive in the current tax year?a. $20,000b. $30,000c. $48,000

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Review Question 3Which one of the following types of organizations is not considered a 50% organization for charitable contribution purposes?a. veterans groupsb. churchesc. schoolsd. hospitals

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Review Question 4Which one of the following is a characteristic of deductible alimony payments?a. A divorce decree regarding these

alimony payments must state that the payments are deductible by the payor.

b. Such payments cannot extend beyond the death of the payee spouse.

c. A divorce decree regarding these alimony payments must state that the payments are includible as income by the payee.

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Review Question 5Ed Wiley recently was divorced from his wife, Julie. Julie received custody of their only child, Sally, age 5. Ed was ordered to pay $500 per month to Julie until Sally reaches age 18. At that time, the payments are to decrease to $200 per month.What portion of each payment, if any, is deductible by Ed as qualifying alimony?a. No portion of each payment is deductible by Ed.b. A total of $200 of each payment is deductible

by Ed.c. A total of $300 of each payment is deductible

by Ed.

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©2015, College for Financial Planning, all rights reserved.

Session 14End of Slides

CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMIncome Tax Planning