CPA Exam — REG (Regulation)Federal Taxation of EntitiesEasy
A client, a C corporation, has current year taxable income of $1,000,000 before considering a charitable contribution of $150,000. What is the maximum charitable contribution deduction the corporation can take in the current year?
- A$250,000
- B$300,000
- C$100,000
- D$150,000
Show answer & explanationAnswer & explanation
Correct answer: C. $100,000
A C corporation's charitable contribution deduction is limited to 10% of its taxable income before the deduction, the dividends received deduction, and certain other deductions. Here, 10% of $1,000,000 is $100,000.
Why the other options are wrong
- A. This is an incorrect calculation and does not reflect the 10% limit.
- B. This is an incorrect calculation and does not reflect the 10% limit.
- D. This would be the full amount contributed, but it exceeds the 10% limit.
C Corp Charitable Contribution Limit
A C corporation's deduction for charitable contributions is limited to 10% of its taxable income, calculated before the charitable contribution deduction, the dividends received deduction, and certain other deductions.
- Excess contributions can be carried forward for five years.
- The limit applies to the current year's taxable income.
- This rule prevents corporations from significantly reducing taxable income through large charitable donations in a single year.
Memory trick: C-Corp's Charity: 10% cap, five-year future.