Business Entity Choices

1554 Words6 Pages
50 points) Sally is on the Board of Directors for Sally Susie's Donut Shop, Inc ("SSDS"). SSDS is a calendar year corporation on the accrual method of accounting. The taxable income for SSDS in year 1 was $250k, in year 2 donut sales plummeted and SSDS only made $10k. In year 3 SSDS had business pick up again and the taxable income was back to $150k. You think, "wow, donut sales is a volatile market!" SSDS made a charitable contribution on January 31 of year 2 of $50k to a 501(c)(3) charity. Sally comes to you as SSDS's tax advisor and asks how she should have deducted this amount optimally as she was very unhappy with her previous tax advisor. What do you advise, and what questions would you ask? Issue: SSD has been experiencing a volatile market with fluctuating sales. In year 2, SSDS only made $10k. In that same year, SSDS made a charitable contribution of $50k to a 501(c)(3) charity. Sally would have had to itemize her deductions: "You may deduct charitable contributions of money or property made to qualified organizations if you itemize your deductions." (IRS Publication 78) I would want to know whether Sally actually donated, or only promised, to donate the money. There is a huge difference since the money is only deductible once the organization pays. If SSD did make over this money, they would have to show all relevant canceled checks, acknowledgment letters from the charity, and appraisals for donated property. The Pension Protection Act specifies that the
Open Document