§In its first year, Barsky Corporation made charitable contributions totaling $30,000. The corporation’s taxable income before...

§In its first year, Barsky Corporation made charitable contributions totaling $30,000. The corporation’s taxable income before any charitable contribution deduction was $250,000. In its second year, Barsky made charitable contributions of $15,000 and earned taxable income before the contribution deduction of $300,000.Compute Barsky’s allowable charitable contribution deduction and its final taxable income for its first year.

§Compute Barsky’s allowable charitable contribution deduction and its final taxable income for its second year.

Solutions

Expert Solution

As per IRS the corporation is entitled to deduct upto 10 percent of a corporation net taxable income without consideration of charitable contribution. Further IRS allows corporations to carryover the excess contribution to future years to set off.

So, allowable charitable contribution deduction and final taxable income for the Barsky corporation will be as follows.

Description	Amount ($)
Ist Year
Taxable income before charitable contribution	250000
Charitable Contribution Limit (10%)	25000
Charitable Contribution	30000
Allowable Deduction	25000
Carryover deduction to next year	5000

Final Taxable Income (Taxable Income(250000) - allowable deduction(25000))	225000

2nd Year
Taxable income before charitable contribution	300000
Charitable Contribution Limit (10%)	30000
Charitable Contribution	15000
Carry back Contribution from 1st Year	5000
Allowable Deduction	20000

Final Taxable Income (Taxable Income(300000) - allowable deduction(20000))	280000

ekkarill92 answered 11 months ago

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