Determine taxable income in each of the following instances. Assume that the cor

Question

Determine taxable income in each of the following instances. Assume that the corporation is a C corporation and that book income is before any income tax expense.

1. Book income of $67,000 including capital gains of $4,900, a charitable contribution of $1,800, and meals and entertainment expenses of $6,000. Book income of $109,000 including capital losses of $10,000, a charitable contribution of $20,500, and meals and entertainment expenses of $2,600.

2. Book income of $84,500 including municipal bond interest of $1,800, a charitable contribution of $5,700, and dividends of $4,400 from a 10% owned domestic corporation. The corporation also has an $7,600 charitable contribution carryover.

Explanation / Answer

Question 1). a). Solution :-

Taxable income = Book income + Non-deductible portion of meal & entertainment expenses.

= 67000 + (50 % of 6000)

= 67000 + 3000

= $ 70,000.

Conclusion :- Taxable income = $ 70,000.

Question 1). b). Solution :-

Taxable income = 109000 + 10000 + (2600 * 50 %) + 6420(NOTE).

= 109000 + 10000 + 1300 + 6420

= $ 126720.

Conclusion :- Taxable income = $ 126,720.

Note :- Deductible portion of charitable contribution = 10 % of (109000 + 10000 + 20500 + 2600 * 50 %)

= 10 % of (109000 + 10000 + 20500 + 1300)

= 10 % of 140800

= $ 14080.

Accordingly, Non-deductible portion of the charitable contribution = 20500 - 14080

= $ 6420.

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