Question

In year 1 (the current year), LAA Inc. made a charitable donation of $132,000 to the American Red Cross (a qualifying charity). For the year, LAA reported taxable income of $572,000, which included a $132,000 charitable contribution deduction (before limitation), a $64,500 dividends received deduction, and a $10,800 net operating loss carryover from year 0. What is LAA Inc.’s charitable contribution deduction for year 1?Charitable contribution deduction ...........

Answer 1

$76,850

Step-by-step explanation:

First, we calculate LAA inc modified taxable income, which includes all the figures given in the question except the net operating loss carryover from year 0.

Modified taxable income = $572,000 + $132,000 + $64,500

= $768,500

Charitable deductions for year 1 is limited to 1% of the taxable income above:

$768,500 x 10% = $76,850

The $85,150 remaning from the charitable donation ( $132,000 - $76,850 = $85,150) will be carried over the next five years at most.