Question

In year 1 (the current year), LAA Inc. made a charitable donation of $151,500 to the American Red Cross (a qualifying charity). For the year, LAA reported taxable income of $622,000, which included a $151,500 charitable contribution deduction (before limitation), a $68,500 dividends received deduction, and a $18,100 net operating loss carryover from year 0. What is LAA Inc.’s charitable contribution deduction for year 1?

Answer 1

The charitable contribution deduction for the year is limited to 10% of taxable income before any charitable contribution, before the dividends received deduction. But, it is determined after deducting NOL carryovers (but not NOL carrybacks). Consequently, LAA's modified taxable income is $842,000 ($622,000 + $151,500 + $68500 ). LAA's charitable contribution deduction is limited to $84,200 ($842,000 × 10%). The remaining $67,300 ($151,500 donation minus $84,200 deductibleamount) is carried over for up to five years.