Alpha Corporation's adjusted taxable income is $100,000 for 2017 and $200,000 for 2018. Alpha makes charitable contributions of $15,000 in 2017 and $19,000 in 2018. How much can Alpha carry forward for its charitable contributions in computing its 2019 taxable income?

Question

Quizplus · Accepted Answer

The carryover limit for charitable contributions is 20% of the adjusted taxable income. In 2017, Alpha's adjusted taxable income was $100,000, so the maximum charitable contributions that can be deducted is $20,000 ($100,000 x 20%). Since Alpha only donated $15,000 in 2017, it can carry forward $5,000 to 2018. In 2018, Alpha's adjusted taxable income increased to $200,000, so the maximum charitable contributions that can be deducted is $40,000 ($200,000 x 20%). Alpha donated $19,000 in 2018, so it can carry forward $21,000 ($40,000 - $19,000) to 2019. However, since the carryover limit is based on the adjusted taxable income for each year, the maximum charitable contributions that Alpha can deduct in 2019 is only $40,000 ($200,000 x 20%), so it can only carry forward $4,000 ($21,000 - $17,000) to 2020. Therefore, the answer is C.

Alpha Corporation's Adjusted Taxable Income Is $100,000 for 2017 and $200,000