50% Limit on Contributions

[GeneInAlabama]

I have a new client that for 2011 had high contributions but did not have enough other expenses to itemize and it looks like it will be the same again this year. I don't recall having this situation before. I know that if he itemizes, he is limited to 50% of his AGI but what if he doesn't itemize? Does he lose all of it? And if part of it can be carried forward, how do we do it and how much? It doesn't seem right, but then I know there is a lot about taxes that isn't right.

[mcb39]

It will carry forward, but the question is whether he will ever have enough taxable income and other itemizations to ever be able to use it. I sometimes see this with older taxpayers who are retired and it never gets used. For a few years I fill out the A because sometimes it will help them out on WI taxes (which allow very few things other than charity to be itemized).

[kcjenkins]

If he does not file the A he loses the chance to carry it forward.

[GeneInAlabama]

Thanks Marilyn and KC. This client is self employed and had a large profit in 2010 and a loss in 2011. In rechecking the return, I saw that we can file an amended return and force itemized deductions and he still won't owe any tax and he can carry the charitable deduction forward. Also, the former preparer didn't figure the NOL which we can carry back. I also saw that he listed $39,000 of wages (payroll taxes were paid and W2 issued) as contract labor and he showed $44,000 as misc expenses. Gross income was $292,000. He also had $36,000 depreciation listed on the sch C but I don't have a list of assets. I hope I can get that from the previous preparer. Looks like I'll have a lifetime client once I get this streightened out.

[mcb39]

Sounds like an interesting one, too. Again; the Subject of Preparers who do not give depreciation schedules to clients. I always do and always will. I feel that the information belongs to them.

[GeneInAlabama]

I always give a copy to my clients too. They pay me to prepare their return and that is part of the return even if the IRS doesn't require it to be sent to them.

[jainen]

>>what if he doesn't itemize? Does he lose all of it?<<

According to Reg. Section 1.170A-10(a)(2), Charitable contributions carryovers of individuals, "The carryover provisions apply with respect to contributions made during a taxable year in excess of the applicable percentage limitation even though the taxpayer elects under section 144 to take the standard deduction in that year instead of itemizing the deduction allowable in computing taxable income for that year." They even give some examples of the math, but it's what you would expect--just reduce the carryover by the amount that would have been deducted on Schedule A each year.

[GeneInAlabama]

Thank you Jainen. I thought I would have to force itemized deductions in order to carry it over.

I was away from this board for a while because I had to replace my ancient computer (8 years old). Now I'm having to learn how to use windows 7.