4.4 - Tax Computations & Credits

Question 1

What are the filing dates for C Corporations with YE and June 30th calendar years?

Answer 1

YE = April 15th
June 30th = September 15th

Question 2

What are the extensions available for C Corporations with YE and June 30th calendar years?

Answer 2

YE = 6 month extension
June 30th = 7 month extension

Question 3

What is the requirement for estimated tax payments for corporations?

Answer 3

Required to pay estimated taxes on the 15th day of the fourth, sixth, ninth, and twelfth months of their tax year (quarterly)

Question 4

When will an underpayment penalty be assessed to corporations?

Answer 4

If they do not make quarterly payments of estimated tax and the amount owed on the return is greater than $500

Question 5

Small corporations are required to pay estimated taxes in the amount of:

Answer 5

The lesser of:
100% of the tax shown on the return for the current year
OR
100% of the tax shown o the return for the preceding year

Question 6

Large corporations are required to pay estimated taxes in the amount of:

Answer 6

100% of the tax as shown on the current year return

Question 7

What classifies a corporation as a “large corporation”?

Answer 7

Taxable income was $1 million or more in any of the 3 preceding tax years

Question 8

What tax Is always applied to corporate taxable income?

Answer 8

A flat tax of 21%

Question 9

What consist of a combination of many other credits?

Answer 9

General business credit

Question 10

What is the limitation to the general business credit?

Answer 10

25,000 is not allowed and then another 25%

Question 11

How are the unused credits that are not allowed in the general business credit treated?

Answer 11

Carried back one year and forward 20 years

Question 12

The research and development credit is calculated how?

Answer 12

20% of the increase in qualified research expenditure over a defined business base amount

Question 13

A corporation may choose annually to take a foreign tax credit or deduction. How does one calculate the credit?

Answer 13

Determine the lesser of the qualified foreign taxes paid or the foreign tax credit limitation
Any unused foreign tax credits can be carried back for 1 year and forward for 10 years

Question 14

Rowe corporation has a $20 million of worldwide taxable income, including $5 million of income from foreign sources. Rowe corporation paid $2.5 million of qualified foreign taxes during the year. Assume that the U.S. corporate income tax rate is 21%. Determine the amount of foreign tax credit for Rowe.

Answer 14

2,500,000 qualified foreign taxes

20,000,000 X 21% = 4,200,000
5,000,000 / 20,000,000 = 25%
25% X 4,200,000 = 1,050,000 foreign tax credit limitation

2,500,000 > 1,050,000; therefore, 1,050,000 is the foreign tax credit

Question 15

The accumulated earnings tax is paid in addition to the regular tax (21%) and is imposed on who?

Answer 15

Those who have accumulated earnings in excess of $250,000 (c corporations) or in excess of $150,000 (personal service corporations) if the earnings are considered to be improperly retained instead of being distributed as dividends to shareholders

Question 16

What is the additional accumulated earnings tax rate?

Answer 16

20%

Question 17

To avoid accumulation of earnings being considered unreasonable by the IRS, there must be:

Answer 17

1. A demonstrated specific, definite, and feasible plan for the use of accumulated earnings
   OR
2. A need to redeem the corporate stock included in a deceased stockholder’s gross estate

Question 18

Who assesses the accumulated earnings tax?

Answer 18

The IRS as a result of an IRS audit of the corporation

Question 19

The personal holding company tax paid in addition to the regular tax (21%) and is imposed on who?

Answer 19

Personal holding companies

Question 20

What is a personal holding company?

Answer 20

Corporations set up by high tax bracket taxpayers to channel their investment income into a corporation and shelter that income through the lower regular tax rate of the corporation instead of paying the higher individual tax rates on that incom

Question 21

The tax law criteria define personal holding companies as corporations that:

Answer 21

Are more than 50% owned by 5 or fewer individuals and have 60% of adjusted ordinary gross income consisting of:
Net rent
Interest (that is taxable)
Royalties
Or dividends

Question 22

What is the personal holding company tax rate?

Answer 22

20%

Question 23

Who assesses the personal holding company tax?

Answer 23

It is self assessed by filing a separate schedule 1120 PH