Question

Class, when corporations make charitable contributions, the rules are different than those that govern individual donations. What kind of limits apply to corporations?

Answer 1

Charitable deductions for Individuals:

You may deduct charitable contributions of money or property made to qualified organizations if you itemize your deductions. Generally, you may deduct up to 50 percent of your adjusted gross income, but 20 percent and 30 percent limitations apply in some cases. Contributions by individuals can take the form of cash, financial assets, or other noncash property such as real estate, clothing, or artwork. Certain contributions face greater restrictions than cash contributions, whereas others receive more generous treatment than cash. The limit for donations of appreciated real property is generally 30 percent of AGI, and the limit for contributions to private nonoperating foundations is the same. But donors may deduct the full current market value of appreciated property.

Charitable deductions for Corporations:

A corporation can claim a limited deduction for charitable contributions made in cash or other property. The contribution is deductible if made to, or for the use of, a qualified organization.

Note.

You can not deduct if any private owner or entity profits from the net income of a company accepting donations.

Cash method corporation.

A corporation using the cash method of accounting deducts contributions in the tax year paid.

Accrual method corporation.

A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the due date for filing the corporation’s tax return (not including extensions). Make the choice by reporting the contribution on the corporation's return for the tax year. Attach a declaration stating that the board of directors adopted the resolution during the tax year. The declaration must include the date the resolution was adopted.

Limitations on deduction.

A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year.

Calculate taxable income for this purpose without the following.

1. The deduction for charitable contributions.

2. The dividends-received deduction.

3. The deduction allowed under section 249 of the Internal Revenue Code for bond premium.

4. Any domestic production activities deduction.

5. Any net operating loss carryback to the tax year.

6. Any capital loss carryback to the tax year.

Carryover of excess contributions.

You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. You lose any excess not used within that period.

Cash contributions.

A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount.

Gifts of $250 or more.

No deductions for a contribution of 250 dollars or higher are generally permitted unless the company receives a written confirmation from the Donated organisation. A summary of the land donated (but not its worth), a good faith explanation of the value of the goods or services provided in lieu of the donation or a declaration that no goods or services is given in exchange for the contribution should be shown by the acknowledgment. the value of the contributed money or the payment should be shown.

Contributions of property other than cash.

If a corporation (other than a closely held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. In addition, the corporation should keep a record of:

a. The approximate date and manner of acquisition of the donated property, and

b. The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution.

For all deductions of property claimed exceeding $5,000, a corporation must obtain a qualified appraisal. For a donation of cash, publicly traded securities, inventory and all qualified vehicles sold by a donated organization without any significant use or material improvement, a qualified assessment is not required.

Qualified conservation contributions.

If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used.

Contributions of used vehicles.

A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. The deduction is limited, and there are other special rules that are applicable.