A client, a C corporation, has taxable income of $900,000 before considering a charitable contribution of $100,000 and a net operating loss (NOL) carryover from a prior year of $50,000. What is the maximum charitable contribution deduction the corporation can take for the current year?
- A$90,000
- B$95,000
- C$100,000
- D$85,000
Show answer & explanationAnswer & explanation
Correct answer: D. $85,000
A C corporation's charitable contribution deduction is limited to 10% of its taxable income before deducting (1) the charitable contribution itself, (2) the dividends received deduction (DRD), and (3) any net operating loss (NOL) carryback. However, NOL carryforwards are deducted before calculating the charitable contribution limitation. So, Taxable Income before CC and NOL carryover = $900,000. Less NOL carryover = $50,000. Adjusted taxable income for CC limit = $850,000. Limit = $850,000 * 10% = $85,000. The corporation can deduct $85,000 this year and carry forward the remaining $15,000 ($100,000 - $85,000) for five years.
Why the other options are wrong
- A. Incorrect. This would be 10% of taxable income before the NOL carryover ($900,000 * 10% = $90,000).
- B. Incorrect. This implies an incorrect calculation of the limitation base.
- C. Incorrect. The full $100,000 cannot be deducted due to the 10% limitation.
C Corp Charitable Contribution Limit
A C corporation's charitable contribution deduction is limited to 10% of its taxable income, calculated before the charitable deduction itself, the dividends received deduction (DRD), and any net operating loss (NOL) carryback. NOL carryforwards reduce the base.
- Limit is 10% of adjusted taxable income.
- Taxable income is adjusted by adding back the charitable contribution itself.
- Taxable income is adjusted by adding back the DRD.
- Taxable income is adjusted by adding back any NOL carryback.
- NOL carryforwards reduce the taxable income base for the limit.
Memory trick: Ten Percent of Adjusted Income, NOLs First.