Question

Zeta corporation have the following income and deductions for the current year Sales 60,000 Cost of sales 30,000 Other operating expenses 40,000 Dividends (from 5% owned corporation) 60,000 Zeta made charitable contribution of 60,000 to a qualified charity. Calculate Charitable deduction for the current year and carryover if any. I

Answer 1

Answer:

Given: Sales 60000,

cost of sales 30000,

Operating expenses 40000 and

dividend (from 5% owned corporation) is 60000

Charitable contribution is 60000

Working notes:

1. Dividend Received is 60000

Allowable Deduction is 50% (if a corporation received dividend for less than 20% owned corporation, it is allowable a deduction of 50%)

Hence dividend Taxable is 30000.............(1)

2. Charitable contribution when provided by the corporation are allowed on deduction only upto 10% of taxable income as per Income tax rule.

Hence Charitable deduction is 10% of 20,000 = 2000....................(2)

3. Charitable contribution is 60000

less charity deduction is 2000

hence carry over is 58000..............................(3)

Charitable Deduction for the current year

Account Title	Amount
Sales	60000
Less: Cost of Sales	(30000)
Gross Profit	30000
Add: Dividend .................................(working note (1))	30000
Total Income	60000
Less: Operating Expense	(40000)
Taxable Income before Charitable Deduction	20000
Less: Charitable Deduction.........................(working note (2))	(2000)
Net Taxable Income	17000

Therefore the answer is Charitable deduction is 2000 and carry over is 58000 (working note (3))