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J. Deduction of Contributions (G.S. 105-130.9(1), (2) and (3))
- Preliminary Statement
Subject to certain limitations, contributions or gifts made by
a corporation within the income year to qualified donees are deductible
in determining net income.
- Charitable Contribution Defined
For purposes of this section charitable contributions are defined
per section 170 (c) of the Internal Revenue Code.
- Contributions Limited to 5% of Net Income (G.S. 105-130.9(1))
The deduction for contributions made to qualified organizations
other than contributions made to the State of North Carolina,
a municipality in North Carolina, or any of their institutions,
instrumentalities, or agencies, and to qualified educational institutions
located within North Carolina are limited to an amount not exceeding
five percent (5%) of the corporation's net income as determined
before the deductions for contributions. State law does not permit
a corporation to carryover unused contributions to subsequent
years.
- Contributions Fully Deductible (G.S. 105-130.9(2))
Contributions or gifts made by a corporation to the State of North
Carolina, a county in North Carolina, a municipality in North
Carolina, or any of their institutions, instrumentalities, or
agencies, and to qualified educational institutions located within
North Carolina are fully deductible in arriving at net income
or loss. "Educational institution" means only an educational
institution which normally maintains a regular faculty and curriculum
and normally has a regularly organized body of students in attendance
at the place where the educational activities are carried on.
This term, however, is deemed to include the institution's departments,
schools and colleges as well as a group of educational institutions
and an organization (corporation, trust, foundation, association
or other entity) organized and operated exclusively to receive,
hold, invest and administer property and to make expenditures
to or for the sole benefit of an educational institution or group
of such institutions.
Example: Corporation B deducted contributions of $100 to a North
Carolina county agency, $50 to a college located in North Carolina
and $50 to other qualified donees in determining net income of
$1000 before deduction of a net economic loss of $500. The allowable
contributions deduction is computed as follows:
| Net income |
$1,000 |
|
| Add: Contributions |
200 |
|
| Net income before net economic loss deductions
|
|
$1,200 |
| Less: Net economic loss brought forward |
|
500 |
| Net income before contributions deduction |
|
$ 700 |
| Less allowable contributions: |
|
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Other qualified donees (not to exceed 5% of
$700) |
35 |
|
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College located in North Carolina |
50 |
|
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North Carolina county agency |
100 |
|
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|
|
$ 185 |
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Net taxable income |
|
$ 515 |
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- Contributions by Corporations Allocating Net Income (G.S.
105-130.9(3))
A corporation which is required to apportion its total net income
to North Carolina by using the allocation and apportionment methods
in G.S. 105-130.4 must deduct from total net income allocable
to North Carolina the contributions it made to North Carolina
donees qualified in subdivisions (1) and (2) of G.S. 105-130.9.
- However, the deduction for contributions made to North Carolina
donees qualified in subdivision (1) of G.S. 105-130.9 is limited
to 5% of total net income allocated to North Carolina as computed
before this deduction. Furthermore, the contributions which qualify
as a direct deduction from total net income allocated to North
Carolina cannot be deducted in arriving at the corporation's total
net income subject to apportionment.
Example: Corporation C's records show net income of $114,000 before
the deductions for a net economic loss and contributions. Contributions
total $6,200 and include $200 to a North Carolina agency, $2,000
to other North Carolina donees and $4,000 to qualified donees
located outside North Carolina.
The deduction for contributions is determined as follows:
| Net income before contributions and net economic
loss deduction |
|
114,000 |
| |
Less: Contributions to donees outside North
Carolina |
|
4,000 |
| Total |
|
$110,000 |
| |
Less: Total nonbusiness income |
|
10,000 |
| Total business income |
|
$100,000 |
| |
Apportionable to North Carolina --35% |
|
$ 35,000 |
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Add: Nonbusiness income directly allocated
to North Carolina |
|
1,000 |
| Total income allocated to North Carolina |
|
$ 36,000 |
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Less: Allowable portion of net economic loss
deduction |
|
6,000 |
| Total income allocated to N C before contributions
to donees |
|
$ 30,000 |
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Less: Contributions |
|
|
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North Carolina donees (not to exceed 5% of
$30,000) |
$1,500 |
|
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North Carolina county agency |
200 |
|
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|
|
$ 1,700 |
| Net taxable income |
|
$ 28,300 |
|
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