Question

Red Corp., a C corporation, wants to make a donation to a public charity in 2020 to generate a tax deduction. Before any charitable contribution deduction, Red Corp will have taxable income of $400,000 (no DRD and no NOL carryovers) in 2020. Red Corp. is deciding between donating one of the following: $50,000 cash Capital gain property (stock) worth $30,000; AB = $10,000 Old inventory worth $20,000; AB = $30,000 What would Red Corp.’s 2020 charitable contribution deduction be if Red Corp. donated the cash?

What would Red Corp.’s 2020 charitable contribution deduction be if Red Corp. donated the stock?

What would Red Corp.’s 2020 charitable contribution deduction be if Red Corp. donated the inventory?

Answer 1

C corp are the only corporations which can deduct charitable contributions only upto the 10% of taxable income. However, charitable donations can be carried forward to next five tax years.

1. Red Corp.’s 2020 charitable contribution deduction if Red Corp. donated the cash of $50,000 will be limited to 10% of Red Corp's taxable income of $400,000.

Red Corp.’s 2020 charitable contribution deduction = 10% of $400,000 = $40,000

$40,000 can be deducted from Red Corp's taxable income in 2020 and rest $10,000 can be carried forward for next five tax years.

2. Corporation can take deduction for the full market value of the capital gain property.

As per the question, FMV of capital gain property(stock) = $30,000

Red Corp.’s 2020 charitable contribution deduction be if Red Corp. donated the stock would be $30,000

3. Inventory can be deducted at fair market value of adjusted basis whichever is smaller.

Smaller of :

Old inventory worth $20,000

or, AB = $30,000

Fair market value of inventory is smaller and can be deducted.

Red Corp.’s 2020 charitable contribution deduction be if Red Corp. donated the inventory would be $20,000.