C:3-37 Charitable Contribution Deduction Limitation. Zeta Corporation reports th

Question

C:3-37 Charitable Contribution Deduction Limitation. Zeta Corporation reports the following results for Year 1 and Year 2:

The adjusted taxable income is before Zeta claims any charitable contributions deduction, NOL or capital loss carryback, dividends-received deduction, or U.S. production activities deduction.

How much is Zeta’s charitable contributions deduction in Year 1? In Year 2?

What is Zeta’s contribution carryover to Year 3, if any?

Year 1 Year 2 Adjusted taxable income $180,000 $125,000 Charitable contributions (cash) 20,000 12,000

Explanation / Answer

The amount of a charitable donation is limitless; however, the amount a taxpayer can deduct on their federal income tax return is limited to a 50% (or less) of their AGI (Form 1040, line 38) depending on the type of donation. When you have made contributions subject to different ceilings, they're applied in a specific order and are subject to an overall ceiling of 50% of AGI. Donations that are not deductible in the year of the gift due to exceeding the 50, 30 or 20% of AGI ceilings, may be carried forward into future tax years over the next five years. The ceiling percentages remain in force when the deduction is carried forward into future tax years. In any case, the total deduction for both current year and carry forward charitable contributions cannot exceed 50% of the AGI for that year. Year 1 Year 2 Adjusted Taxable Income 180000 125000 Charitable contributions Paid during the year (cash) 20000 12000 Allowable Deduction 90000 62500 Both the cases zeta corporation can claim total payment related to charitable purpose as allowable expenditure.

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