19.1 C CORPORATIONS Flashcards
WHAT IS THE THE CORPORATE INCOME TAX FORMULA?
- C CORPS USE FORM 1120 FOR REPORTING INCOME, GAINS, DEDUCTIONS, AND CREDITS, AND TO DETERMINE TAXABLE INCOME AND INCOME TAX LIABILITY
ORDERING RULE FOR DETERMINING TAXABLE INCOME
TO DETERMINE CHARITABLE DEDUCTION ALL DEDUCTION ARE TAKEN INTO CONSIDERATION EXCEPT SPECIAL DEDUCTIONS (THIS INCLUDES NOL CF IF THE COPORATIONS INCOME EXCEEDS DEDUCTIONS)
TO DETERMINE DRD NOL CF’S ARE EXCLUDED WHEN DETERMINING THE DRD DEDUCTION
LASTLY IF APPLICABLE CARRYBACK LOSSES ARE DEDUCTED TO ARRIVE AT TAXABLE INCOME
WHAT IS TREATMENTS OF TAXABLE REVENUE/INCOME FOR CASH AND ACCRUAL BASIS?
EXCEPTION: RENT AND INSURANCE PREMIUMS
Essentially advance payment for rent and insurance premiums must be included when cash received regardless of the accrual basis.
WHAT IS TREATMENTS OF TAXABLE DEDUCTIONS FOR CASH AND ACCRUAL BASIS?
AN ACCRUAL BASIS TAXPAYER CAN ACCRUE AN EXPENSE IF THE TRANSACTION MEETS BOTH AND,
1) ALL-EVENTS TEST: EXISTENCE OF A LIABILITY IS ESTABLISHED, AND THE AMOUNT OF LIABILITY CAN BE DETERMINED WITH REASONABLE ACCURACY.
2) ECONOMIC PERFORMANCE TEST: OCCURS WHEN PROPERTY AND/OR SERVICES HAVE BEEN PROVIDED. ACCRUED ITEMS THAT ARE EXPECTED TO BE PAID WITHIN A SHORT PERIOD OF TIME AFTER ACCRUAL MAY BE DEDUCTED WHEN ACCRUED IF PAID WITHIN 2 1/2 MONTHS (3/ 1/2 MONTHS FOR CALENDER YEAR END) OF THE TAX YEAR END.
WHAT IS TREATMENTS OF TAXABLE DEDUCTIONS FOR CASH AND ACCRUAL BASIS - DEDUCTING ACCRUED COMPENSATION?
A GRACE PERIOD OF 2 1/2 MONTHS IS ALLOWED (3 1/2 FOR CALENDER-YEAR COMPANIES), TO COUNT THE DEDUCTION IN THE CURRENT YEAR
*FYI UP TO 1 MIL OF COMPENSATION EXPENSE FOR CERTAIN COVERED EMPLOYEES IS PERMITTED
WHAT IS THE DEDUCTIBILITY OF CASUALTY LOSSES FOR C-CORPS?
THE LESSER OF THE ADJUSTED BASIS BEFORE THE CASUALTY, OR THE DECLINE IN VALUE.
WHAT IS THE DEDUCTABILITY TREATMENT OF BUSINESS GIFTS?
BUSINESS GIFTS ARE LIMITED TO $25 PER INDIVIDUAL
PROMOTIONAL ITEMS ARE LIMITED TO $4 PER ITEM
WHAT IS THE DEDUCTABILITY TREATMENT OF RESEARCH AND EXPERIMENTAL COSTS?
R&E EXPENDITURES ARE CAPITALIZED AND AMORTIZED OVER 5 YEARS. MID YEAR AMORTIZATION IS USED IN THE FIRST YEAR.
WHAT ARE DIVIDEND RECEIVED DEDUCTIONS?
WHEN AN INVESTOR CORPORATION RECEIVED DIVIDENDS FROM DOMESTIC INVESTEE CORPORATION, IT GENERALLY IS ALLOWED A DRD TO MINIMIZE MULTIPLE TAXATION.
TO QUALIFY FOR THE DEDUCTION, THE CORPORATION MUST HAVE HELD THE STOCK FOR AT LEAST 46 DAYS PRIOR TO THE EX-DIVIDEND DATE.
DRD IS ONLY ALLOWED FOR C-CORPORATIONS
FOLLOW STEPS - SCREENSHOT
- IF FULL DRD IS GREATER THAN TAXABLE INCOME (BEFORE DRD) THE FULL DRD APPLIES
- IF FULL DRD IS LESS THAN TAXABLE INCOME (BEFORE DRD) THE DEDUCTION IS LIMITED TO THE LESSER OF FULL AND LIMITED DRD.
A CAVEAT FOR FOREIGN CORPORATIONS IS THAT YOU CAN DEDUCT 100% IF YOU HAD OWNERSHIP EXCEEDING OF THE STOCK FOR MORE THAN 365 DAYS 10%
IS FULL DRD GREATER THAN TAXABLE INCOM BEFORE DRD? IF WE HAVE MULTIPLE DIVIDENDS FULL DRD IS A BUNDLE OF ALL DRD, THEN WE DETERMINE IF ITS GREATER THAN TAXABLE INCOME BEFORE DRD.
PLEASE CHECK IF THE 1099 DIV IS FROM A US OR FOREIGN ENTITY, - FOREIGN ENTITY’S ARE EXCLUDED
WHAT IS THE MAXIMUM ALLOWABLE DEDUCTION THAT CORPORATION CAN TAKE AS A CHARITABLE CONTRIBUTION?
- FOR LT CAPITAL GAIN PROPERTY , THE DEDUCTION EQUALS THE FMV OF THE PROPERTY
- FOR OTHER PROPERTY, THE DEDUCTION IS THE LESSER OF THE PROPERTY’S ADJUSTED TAX BASIS OR THE FMV ON DATE CONTRIBUTED.
- LIMITED TO 10% OF TAXABLE INCOME BEFORE CHARITABLE CONTRIBUTIONS, NOL’S, DRD’S AND SPECIAL DEDUCTIONS.
*SPECIAL DEDUCTIONS: CHARITABLE CONTRIBUTIONS, DRD, DEDUCTION FOR A CAPITAL LOSS CARRYBACK.
ACCRUAL METHOD CORPORATIONS CAN ELECT TO TREAT AS PAID DURING THE TAX YEAR ANY CONTRIBUTION PAID BY 4/15, NOT FOR INDIVIDUALS
THE REMAINDER EXCEEDING THE 10% IS CARRIED FORWARD UP TO 5 YEARS
WHAT IS THE NETTING PROCESS OF A C CORPORATION?
THE RESULT IS AN OVERALL NET CAPITAL GAIN OR NET CAPITAL LOSS.
ALWAYS TREATED AS SHORT TERM.
A NET CAPITAL GAIN IS REPORTED AS ORDINARY INCOME.
A NET CAPITAL LOSS IS NOT ALLOWED TO BE DEDUCTED AGAINST ORDINARY INCOME.
IT IS SUBJECT TO THE CARRY BACK AND CARRY FORWARD RULE TO OFFSET PRIOR CAPITAL GAINS.
IF WE HAVE 1231 GAINS AND LOSSES THEY ARE INCLUDED IN THE NETTING PROCESS, AND OF COURSE A OVERALL 1231 LOSSES CAN OFFSET ORDINARY INCOME
WHAT IS THE TREATMENT OF C CORPORATIONS’ NET CAPITAL LOSS?
*OFFSET IS LIMITED BY TAXABLE INCOME IF APPLICABLE
WHAT IS THE FOREIGN TAX CREDIT LIMITATION?
THE PURPOSE OF THIS CREDIT IS TO PREVENT DOUBLE TAXATION OF FOREIGN INCOME THAT IS SUBJECT TO INCOME TAX.
WHAT IS THE GENERAL BUSINESS CREDIT?
REWARDS COMPANIES FOR ENGAGING IN CERTAIN ACTIVITIES
LIMITED TO 25% OF YOUR T/I OVER 25K
NET INCOME TAX - [(NET INCOME TAX - 25K) x 25%]
WHAT IS PULIC LAW 86-272?
ALLOWS A BUSINESS TO GO OR SEND A REPRESENTATIVE INTO A STATE TO SOLICIT ORDERS FOR GOODS WITHOUT BEING SUBJECT TO A NET INCOME TAX.
APPLIES EXCLUSIVELY TO ORDERS FOR TABGIBLE PERSONAL PROPERTY.
WHAT IS NEXUS
AN ENTITY HAS NEXUS WITH ANOTHER STATE WHEN IT ENGAGES IN CERTAIN SIGNIFICANT ACTIVITIES WITHIN THAT OTHER STATE. (SUBJECT TO SALES AND INCOME TAX)
ONCE NEXUS IS ESTABLISHED, THE ENTITY MUST OBTAIN A CERTIFICATE OF AUTHORITY FROM THE STATE TO DO BUSINESS THERE.
WHAT IS THE 3 FACTOR APPORTIONMENT FORMULA?
CORPORATIONS OPERATING IN MULTIPLE STATES ARE REQUIRED TO APPORTION THEIR BUSINESS INCOME AMONG THE STATES IN WHICH THEY OPERATE UNIFORM DIVISION OF INCOME FOR TAX PURPOSES ACT (UDITPA)
STATES GENERALLY USE THE AVERAGE OF THREE FACTORS,
1) SALES
2) PAYROLL
3) PROPERTY
WHAT ARE THE GENERAL REQUIREMENTS FOR CORPORATE MERGERS AND CONSOLIDATIONS?
DOUBLE-WEIGHTED APPORTIONMENT FORMULA
WHAT IS THE TREATMENT OF NOL’S
OCCURS WHEN A CORPORATIONS ALLOWABLE DEDUCTION EXCEEDS GROSS INCOME FOR TAX PURPOSES. NOL’S OFFSET TAXABLE INCOME UP TO 80% AND CAN BE CARRIED FORWARD INDEFINETELY. FOR 2021 AND FORWARD.
BEFORE 2018 - CF 20 YEARS FOR 100% OF TAXABLE INCOME - CARRYBACK 2 YEARS
2018 - 2020 - CF INDEFINITE FOR 100% OF TAXABLE INCOME - 5 YEAR CARRYBACK
AFTER 2020 - CF INDEFINITE FOR 80% OF TAXABLE INCOME - NO CARRYBACK
AN NOL CARRYFORWAR CANNOT CREATE AN NOL IN THE CURRENT YEAR.
