Question

7. In 2021 , Citradoria Corporation is a regular corporation that contributes $35,000 cash to qualified charitable organizations during the current tax year. The corporation has net operating income of $91,000, before deducting the contributions, and adding dividends received from domestic corporations (ownership in all corporations is less than 20 percent) in the amount of $25,000. a. What is the amount of Citradoria Corporation's allowable deduction for charitable contributions for 2021 ? b. In 2022, Citradoria contributes $14,000 to charitable organizations. The corporation has net operating income of $150,000 before deducting the contributions, and no dividend income. What is the amount of Citradoria's allowable deduction for charitable contributions for 2022? $ c. If there is any carryover of the charitable contribution deduction from 2022, what year will it expire?

Answer 1

In 2021, the allowable deduction for Citradoria Corporation is up to 10% of its taxable income, which is $11,600. In 2022, Citradoria can fully deduct the $14,000 charitable contribution due to a lower contribution amount as compared to their net operating income. Any unused charitable deduction from 2021 can be carried forward for up to five years, expiring after 2026.

Step-by-step explanation:

Allowable Deduction for Charitable Contributions in 2021

For the year 2021, under the tax code, corporations can deduct charitable contributions up to 10% of their taxable income. Citradoria Corporation's taxable income before the charitable contribution would be the sum of its net operating income and dividends received, which is $91,000 (net operating income) + $25,000 (dividends) = $116,000. Therefore, the maximum allowable deduction Citradoria Corporation can claim for charitable contributions is 10% of $116,000, which amounts to $11,600.

Since Citradoria Corporation contributed $35,000, it can only deduct $11,600 on its 2021 taxes. The excess $23,400 ($35,000 - $11,600) can be carried forward for up to five years.

Allowable Deduction for Charitable Contributions in 2022

In 2022, Citradoria Corporation's deduction for charitable contributions is again limited to 10% of its taxable income. Since the corporation has a net operating income of $150,000 and no dividend income, the maximum deductible amount would be 10% of $150,000, which equals $15,000. Therefore, Citradoria can fully deduct the $14,000 charitable contribution in 2022.

Expiration of Carryover Contribution Deduction

If there are any charitable contribution deduction carryovers, they can be used for up to five years following the year of the contribution. Since the 2022 contribution was fully deductible, there is no carryover to future years from 2022. The carryover from 2021 would expire after 2026.

Answer 2

The allowable deduction for charitable contributions for Citradoria Corporation in 2021 is $9,100. In 2022, the allowable deduction is $15,000 if there are no dividend incomes. Any carryover of the charitable contribution deduction from 2022 will expire in 2027.

Step-by-step explanation:

a. The amount of Citradoria Corporation's allowable deduction for charitable contributions for 2021 is determined based on a percentage of its net operating income. As a regular corporation, the deduction is limited to 10% of the corporation's taxable income, before taking into account the charitable contributions. Therefore, the allowable deduction would be $9,100 (10% of $91,000).

b. In 2022, since the corporation has no dividend income, the deduction is still limited to 10% of the corporation's taxable income. Therefore, the allowable deduction would be $15,000 (10% of $150,000).

c. If there is any carryover of the charitable contribution deduction from 2022, it will expire in 5 years from the year of the contribution. Therefore, if there is a carryover from 2022, it will expire in 2027.