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?

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.

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.