Question

Required information [The following information applies to the questions displayed below.] In year 1 (the current year), OCC Corp. made a charitable donation of $200,000 to the Jordan Spieth Family Foundation (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. b. In year 2, OCC did not make any charitable contributions. It reported taxable income of $300,000 before any charitable contribution deductions and before a $15,000 dividends received deduction. What book-tax difference associated with the charitable contributions will OCC report in year 2? Is the difference favorable or unfavorable? Is it permanent or temporary? Book-tax Difference Favorable or Unfavorable Temporary or Permanent Year 2

Answer 1

Charitable contributions for corporation is limited upto 10% of income before considering charitable contribution and other deductions like dividend received deductions and Nol deduction.

In given case OCC corporation has income of $1500000. Maximum deduction is allowed upto 10% of income $ 150000 remaining can be carryforward up to 5 years.

In second year income is $ 300000 and carryforward amount is $ 50000. Maximum deduction upto $ 30000.

So remaining $20,000 is book-tax difference.

Book - tax difference is favorable as taxable income is high than book income.

Difference is temporary as IRS allows future deductions from taxable income.