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A corporation expects to have $600,000 in taxable income but wants to lower its tax bill....

A corporation expects to have $600,000 in taxable income but wants to lower its tax bill. To do this, it donates a painting that the corporation has owned for the last 10 years to a history museum so it may claim a charity deduction. The corporation does not know the museum intends to sell the painting to help fund the cost of a new exhibit. The painting originally cost the corporation $50,000 and is now valued at $90,000.

What is the corporation's new taxable income?

A. $460,000

B. $510,000

C. $540,000

D. $550,000

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Answer #1

The deduction in respect of donation will be,

Lower of,

  • Current value of the donation, or
  • 10% of the taxable income.

That is lower of 90,000 or (600,000 x 10%) = 60,000 which is 60,000.

Therefore the new taxable income will be 600,000 - 60,000 = 540,000.

Answer is c. 540,000.

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