Question

in 2022, occ corporation made a charitable donation of $400,000 to the international rescue committee (a qualifying charity). for the year, occ reported taxable income of $1,500,000 before deducting any charitable contributions, before deducting its $20,000 dividends-received deduction, and before deducting its $40,000 nol carryover from last year. required: what amount of the $400,000 donation is occ allowed to deduct for tax purposes in 2022, what is the carryover to 2023, and when does the carryover expire? assume that in 2023, occ did not make any charitable donations and that it is allowed to deduct its full charitable contribution carryover, if any, from 2022. what book-tax difference associated with the charitable contributions will occ report in 2023? is the difference favorable or unfavorable? is it permanent or temporary?

Answer 1

In 2022, OCC Corporation can deduct $144,000 of its $400,000 charitable donation for tax purposes. The remaining $256,000 is carried over to 2023 and will expire in 2027. In 2023, OCC can deduct the full carryover and the book-tax difference associated with the charitable contribution is favorable and temporary.

Step-by-step explanation:

In 2022, OCC Corporation made a charitable donation of $400,000 to the International Rescue Committee, a qualifying charity. To determine the amount of the donation that OCC can deduct for tax purposes, we need to consider several factors.

1. First, we subtract any dividends-received deduction from its taxable income. In this case, OCC has a dividends-received deduction of $20,000.
2. Next, we deduct any net operating loss (NOL) carryover from the previous year. OCC has an NOL carryover of $40,000.
3. Finally, we calculate the qualifying charitable contribution. OCC reported taxable income of $1,500,000, but after deducting the dividends-received deduction and the NOL carryover, its taxable income is reduced to $1,440,000.

According to the tax rules, a corporation can deduct charitable contributions up to a certain percentage of its taxable income. For most corporations, the limit is 10% of their taxable income.

In this case, 10% of $1,440,000 is $144,000. Since OCC's charitable donation is $400,000, it exceeds the limit. Therefore, OCC can only deduct $144,000 for tax purposes in 2022.

The remaining $256,000 is carried over as a charitable contribution carryover to 2023. The carryover expires after five years, so it will expire in 2027.

In 2023, OCC did not make any charitable contributions. It can deduct its full charitable contribution carryover from 2022, which is $256,000.

The book-tax difference associated with the charitable contributions in 2023 would be $256,000. Since OCC can deduct the full carryover, the book-tax difference is favorable because it reduces the taxable income.

The book-tax difference for the charitable contributions is a temporary difference because it is expected to reverse in the future when OCC fully utilizes the carryover.

Answer 2

OCC Corporation can deduct $150,000 of its $400,000 charitable donation for tax purposes in 2022, with a carryover of $250,000 to 2023. The carryover expires by the end of 2027. In 2023, OCC will have a favorable temporary book-tax difference of $250,000 related to the carryover.

Step-by-step explanation:

For tax year 2022, the Internal Revenue Code typically permits corporations to deduct charitable contributions up to 10% of their taxable income before considering any charitable contributions, dividends-received deduction, and net operating loss (NOL) carryovers. OCC Corporation's taxable income before these deductions is $1,500,000. Thus, the maximum charitable contribution deduction allowed would be 10% of $1,500,000, which is $150,000.

Therefore, of the $400,000 donation, OCC is allowed to deduct $150,000 for tax purposes in 2022. The remaining $250,000 is carried over to the next tax year. The carryover of charitable contributions is permissible for five years following the initial donation year. Consequently, the carryover expires at the end of the fifth year after 2022, which is in 2027.

In 2023, assuming OCC can deduct its full charitable contribution carryover and does not make any new charitable donations, it will deduct the $250,000 carryover from its taxable income. The associated book-tax difference related to charitable contributions would be the $250,000, and this difference would be considered a favorable difference since the taxable income is reduced, resulting in lower tax liability. However, this would be a temporary difference because it will reverse in the future when the carryover period ends or when the carryover is used up.