Katie and William recently had a baby. Katie is a famous actress and philanthropist. William is a famous actor and action star. William and Katie are regarded in Hollywood circles as a power couple. Because of the couple's fame, there are countless stories about them in the tabloids. They are always followed by the paparazzi and often featured on covers of national magazines. In fact, William was once pictured on the cover of a magazine as the "most handsome man alive". Both Katie and William have been your clients for 10 years, even before the time they were married. Because of their different en devours, Katie and William's taxable income has historically varied widely by year, but nonetheless, they always seem to need your tax advice, and are willing to pay quite well for it.
On December 3, 2015, Katie and William plan to sell the highly-sought after first baby photos of their newborn daughter, Georgina, to Stars Lifestyle, a national magazine, for $15 million. Georgina was born October 3, 2015. In exchange for the $15 million payment, Stars Lifestyle will obtain the publication rights to the pictures in North America. Katie and William, collectively worth more than $300 million, wish to donate the $15 million proceeds to benefit the American Red Cross. They also would like to complete this transaction as soon as possible, as they are currently being followed relentlessly by the paparazzi for the first pictures of their baby, to the point where they feel that their privacy is being violated daily (just last week Katie spotted a reporter in a tree outside Georgina's window). Katie and William file a joint tax return (married filing jointly) and will have combined adjusted gross income (''AGI'') of $8 million for 2015, prior to considering any anticipated proceeds from the sale of the photographs. Katie and William are expected to be in a similar taxable income situation in future years and tax rates are not expected to change.
- Katie and William ask you what are the tax implications if they sell the photos for $15 million and then claim a charitable contribution deduction on their 2015 joint tax return? Also, do you have any planning ideas that may reduce the tax impact of the transaction?