CPA Exam — REG (Regulation)Federal Taxation of EntitiesEasy
A client, a C corporation, has taxable income of $750,000 before considering a charitable contribution of $100,000. What is the maximum deductible charitable contribution for the current year?
- A$100,000
- B$75,000
- C$150,000
- D$0
Show answer & explanationAnswer & explanation
Correct answer: B. $75,000
C corporations are limited to deducting charitable contributions up to 10% of their taxable income before the deduction itself, any dividends received deduction, and certain other deductions. In this case, 10% of $750,000 is $75,000.
Why the other options are wrong
- A. This would be incorrect as the full amount is not deductible due to the 10% limitation.
- C. This is incorrect; the limitation is 10%, not 20%.
- D. This would be incorrect as a C corporation is allowed to deduct charitable contributions.
C Corp Charitable Contribution Limit
C corporations can deduct charitable contributions up to 10% of their taxable income, calculated before certain deductions.
- Limit is 10% of taxable income
- Taxable income is calculated before the charitable contribution deduction itself
- Excess contributions can be carried forward for 5 years
Memory trick: Charity's cap: Ten percent, no more, for corporate giving's core.