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Saturday, November 16, 2013

C Corp charitable contributions

Their C Corporation made a charitable contribution on my parents' behalf. They own the C Corporations 100%. The C Corporation owed them money, so that amount owed was reduced by the amount of the contribution. The C Corporation did not deduct the charitable contribution on its Form. Can my parents' deduct it? I can't find anything that says they can't.

Answer :

In general, since a corporation is a separate entity from the owners, the corporation can make charitable contributions on its own behalf and take deductions for those contributions; The IRS has imposed limitations of deductibility of Charitable contributions made by a C Corp. The IRS rules state the Corp is entitled to deduct upto a maximum of 10% of a Corporations net taxable income without consideration of NOL and Charitable contribution. In other words, calculate the taxable income w/o deduction of charitable contribution, and a maximum limit is 10% of this taxable income. Therefore, if there is no taxable income, the corporations would not be able to deduct charitable contributions for that calendar year.As long as the C corp made a contribution in excess of the 10% limit. Then, the IRS allows the Corp to simply carryover the excess to future years, to allow deductions in those years provided the rules for deductibility are met.

In the case of an S corp, certain items, like charitable contributions flow to the personal part of shareholder/employee’s return. So even though the S-Corp makes the donation it's reported to an employee/owner on the K-1 and then the owner/EE reports it on his/her Sch A of 1040.UNLESS they itemize, they wont get the tax benefit of the contribution.

Visit Asktaxguru for Online tax help

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