Question

In year 1 (the current year), LAA Inc. made a charitable donation of $101,250 to the American Red Cross (a qualifying charity). For the year, LAA reported taxable income of $600,000, which included a $101,250 charitable contribution deduction (before limitation), a $56,000 dividends received deduction, and a $13,700 net operating loss carryover from year 0.

What is LAA Inc.’s charitable contribution deduction for year 1?

Answer 1

We know that charitable contribution deduction is limited to 10 % of modified taxable income before any charitable contribution, before the domestic production activities deduction and before the dividends received deduction
				Hence, Modified taxable income is $(600,000+101,250+56,000) = $757,250
Therefore, LAA's charitable contribution deduction is limited to $75,725 (757,250*10%) for year 1
And, the remaining donation $(101,250-75,725) = $25,525 is carried over for up to five years.