A client, a C corporation, has current year taxable income of $800,000 before considering a charitable contribution of $100,000. It also has a net operating loss (NOL) carryforward from a previous year of $50,000. What is the maximum charitable contribution deduction the corporation can take for the current year?
- A$0
- B$100,000
- C$75,000
- D$80,000
Show answer & explanationAnswer & explanation
Correct answer: C. $75,000
A C corporation's charitable contribution deduction is limited to 10% of its taxable income before the charitable contribution deduction, the dividends received deduction (DRD), the capital loss carryback, and the NOL carryback. Importantly, the NOL carryforward is deducted *before* calculating the charitable contribution limit. So, $800,000 (taxable income) - $50,000 (NOL carryforward) = $750,000. The limit is 10% of $750,000, which is $75,000.
Why the other options are wrong
- A. Incorrect, a deduction is allowed but limited.
- B. This is the full contribution, which exceeds the allowable limit.
- D. This would be 10% of $800,000, incorrectly assuming the NOL is not deducted first.
C Corp Charitable Contribution Deduction Limit
A C corporation's charitable contribution deduction is limited to 10% of its taxable income. Taxable income for this purpose is calculated before the charitable contribution deduction itself, the dividends received deduction, the capital loss carryback, and any net operating loss (NOL) carryback, but *after* any NOL carryforward.
- Limit is 10% of adjusted taxable income.
- NOL carryforward reduces income before limit calculation.
- NOL carryback does not reduce income for limit calculation.
- DRD and capital loss carryback also don't reduce income for limit.
Memory trick: Charitable C-Corp: 10% of (Income - NOL CF)!