BUSINESS - CRAM SESSION TOPICS Flashcards
What is the earliest date that a business can be treated as a corporation without regard to the election relief rules, if they file Form 8832 by March 15 of any given year.
The earliest date is: January 1 of the year the Form 8832 is filed.
This is so because, an eligible entity may elect an alternative treatment no more than two months and 15 days after the beginning of the tax year the election is to take effect, or anytime in the preceding tax year.
What is the rule concerning an LLC changing its Tax Classification.
Once the LLC entity makes an election to change its taxation classification, the entity generally cannot change its classification by election again for 60 months (5 YEARS) after the effective date.
It can be changed with IRS permission, but that is not the norm.
When must an entity elect to become a Corporation for the current tax year?
They must elect an alternative tax treatment for their company no more than 2 months and 15 days after the beginning of the tax year the election is to take effect.
That, or any time in the preceding tax year.
So MARCH 15th is the last day if you want your entity to have the new election on Jan 1 of that year.
The amortization of a bond premium should be calculated using the CONSTANT YIELD TO MATURITY METHOD, and can be used as an offset to interest income.
Using the Constant yield method:
Purchase Price x Yield To Maturity (YTM) at issuance - Subtract the Coupon Interest.
As the bond reaches maturity, the premium with be amortized over time, eventually reaching $0 on the exact date of maturity.
(Good to know. Not core test material)
Intangibles (including purchased goodwill) are amortized over 15 years.
True or False?
True.
Note: Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them didn’t result in a significant change in ownership or use.
(Good to know. Not core test material)
A corporation has two choices with qualifying research and development (R&D) expenditures.
- Deduct the expenses, or
- Elect to capitalize the expenditures and amortize ratably over a five-year period.
(Good to know. Not core test material)
What are 2 types of Capital Expenses that CANNOT be Amortized
- Costs for issuing stock, securities, or partnership interests, such as commissions, professional fees, and printing costs.
- Costs associated with the transfer of assets to the business.
Start Up Costs Examples (S&W, A, A, T)
Salaries & Wages - Employees, Execs, Consultants
Analysis of Markets
Advertising
Travel
Most states do not restrict ownership, and so Corporation MEMBERS may include
- Individuals,
- Corporations,
- Other LLCs, and
- Foreign entities.
There is no maximum number of members, or an LLC can simply be one individual.
S CORP NOTE:
Most entities including business trusts, partnerships, and corporations are prohibited from holding stock in S Corps. That and Non-Resident Aliens.
Section 263A
UNICAP “Uniform Capitalization Rules”
They capitalize the direct cost and part of the direct costs for production or resale activities.
Beginning in 2018 under the TCJA, any producer that meets the “Gross Receipts Test” (under $26 Million for 2019) is EXEMPTED from the application of Section 263A.
Self-Employed Health Insurance Deduction
Health Insurance Premiums are deductible provided the TP is:
- Self-Employed with a net profit reported on Sch C or Sch F if farming.
- A partner with net earnings from SE reported on Sch K-1
- A shareholder owning more than 2% of outstanding stock of an S Corp with wages from the Corp reported on Form W-2, Wage and Tax Statement.
The TP MUST establish the insurance plan under the TP’s business, however the plan may either be in the name of the business or the individual.
Describe the AUTHORIZATION OF CHARITABLE CONTRIBUTIONS process and provide the date the payment must be made.
Contributions that are authorized by the board of directors during a tax year are assumed to have been paid in that tax year if payment is made by the 15th day of the 3rd month (March 15) of the following tax year.
At the end of 20X1, if the board authorizes a contribution, it must be paid out by March 15.
START UP AND ORGANIZATIONAL DEDUCTIONS
A corporation can elect to deduct up to $5,000 of business start-up and up to $5,000 of organizational costs paid.
Any remaining costs must be amortized over a period of 15 years.
The company may start expensing or amortizing these costs from the date that the business started operations.
For each category, the $5,000 initial deduction is reduced by the amount of total costs that exceed $50,000. $1 reduction for every $1 of excess costs.
If the total costs are $55,000 or more, the initial deduction is reduced to zero. $55,000 – $50,000 = $5,000 excess.
Generally, you must file Form 1095-C by ___________ if filing on paper.
February 28th
Capital Losses
What is the Carryback and Carryforward?
Does FIFO apply?
Corporate capital losses may NOT be used to offset ordinary income.
Capital losses that are not used to offset capital gains in the current period may be carried back for three periods or forward for five years to offset capital gains in those periods.
Capital losses are used on a FIFO basis.
Capitol Losses - Example
Polina Corp. had a $10,000 short-term capital gain and a $23,000 long-term capital loss in 20X7. The resulting net capital loss of $13,000 is NOT deductible in the current year. Instead, the loss is carried back to 20X4 and may be used to offset capital gains in 20X4. If there are no capital gains in 20X4, it may be used in 20X5 or 20X6.
If there are no capital gains in the previous three years, it may be carried forward for up to five years.
When it is used, it will be treated as a SHORT-TERM capital loss, even though a long-term loss created the original carryback.
ORGANIZATIONAL COSTS
Include any costs of creating a corporation that are INCURED BEFORE the end of the first tax year.
The costs of TEMP DIRECTORS
The costs of ORG MEETINGS,
State INCORPORATION FEES, and
The cost of LEGAL SERVICES related to starting the business.
____________________
NOTE: The cost of issuing and selling stock is an example of what is NOT an organizational cost that can be amortized
START UP COSTS defined
Costs related to creating an active trade or business, or investigating the creation or acquisition of an active trade or business.
An ANALYSIS or survey of potential markets, products, labor supply, transportation facilities, etc.,
ADVERTISMENTS for the opening of the business,
SALARIES and WAGES for employees who are being trained and their instructors,
TRAVEL and other necessary costs for securing prospective distributors, suppliers or customers,
SALARIES and FEES for executives and consultants, or for similar professional services.
START UP DEDUCTIONS - Example 03
Polina opened a bakery on October 22, 20X6. Polina incurred $53,000 of start-up expenses before the bakery opened.
What can she deduct from her start-up costs?
Because the expenses exceed $50,000, Polina must reduce the initial year $5,000 deduction by $1 for every $1 of start-up costs over $50,000. Thus, the $5,000 amount is reduced to $2,000. Polina will amortize the remaining $51,000 ($53,000 - $2,000) over 180 months. The monthly amortization amount is $283 ($51,000/180).
In Polina’s first year, the amount of start-up costs expensed is $2,850. This is the $2,000 of expensed costs and 3 months of amortization.
Earlier Net Operating Losses - Prior to 2018 TCJA ammendments
NOLs arising in taxable years beginning before 2018 remain subject to prior law.
Not subject to the 80-percent limitation and are able to be carried back for a period of two years, or carried forward for up to 20 years.
Calculating NOL
The net operating loss is essentially the net loss for the company.
CASUALTY OR THEFT LOSSES may be included as part of the net operating loss.
The DIVIDENDS RECEIVED DEDUCTION is calculated without the limitations to a percent of taxable income.
The corporation may NOT deduct any carryovers from other years.
CAPITAL LOSS CARRYOVERS may NOT be used in year with a net operating loss.
The same is true of CHARITABLE CONTRIBUTIONS CARRYOVERS.
Normally no deduction for charitable contributions is allowed in a loss year because charitable contributions are limited to a percentage of net income.
NET OPERATING LOSS - Example
In 2019, Marcus Corp. had $250,000 of gross income from business operations and $310,000 of allowable business expenses. Marcus Corp. also received $100,000 in dividends from a U.S. corporation. Marcus Corp. is able to take a 65% dividend received deduction, which would normally be limited to 65% of its taxable income before the deduction.
Marcus Corp. calculates its NOL as follows:
Gross Income = $350K (Business Income + Dividends)
Minus Expenses ($310K)
Minus Dividend Rec’d Deduction ($65K) - there is no limitation for the NOL calculation
= NOL ($25K)
Threshold Amount in relationship to NOL
The Maximum Net Loss a TP, other than a Corp, may deduct is $255,000 ($510,000 for MFJ).
And this Excess Business Loss is NOT ALLOWED for the taxable year.
Net Operating Loss - Rules of the Road
Corporations may use a net operating loss to offset taxable income in future periods.
Carry forward indefinitely.
Deduction limited to 80% of taxable income. (2018 and later)
NET OPERATING LOSS
An Excess Business Loss. The amount by which the total deductions from TP’s trades are MORE than the total gross income or gains from TP’s trades PLUS the Threshold Amount.
The Threshold Amount for 2019 is $255,000.
And $510,000 for MFJ filers.
Separately Stated Items
Some items are considered to be “separately stated”. Instead of affecting the income or expense of the entity, they’re passed through to the owners separately. These are on the shareholders K-1s.
EXAMPLES:
- Section 1231 gains and losses,
- Net short-term capital gains and losses,
- Net long-term capital gains and losses,
- Dividends eligible for the dividends received deduction (if a shareholder is a C-Corporation),
- Charitable contributions,
- Taxes paid to a foreign country,
- Tax-exempt interest and related expenses,
- Investment income and expenses,
- Amounts previously deducted, such as bad debts,
- Real estate income and expenses,
- Section 179 deductions,
- Tax credits, and
- Non-deductible expenses, such as 50% of meals and entertainment expenses.
Special Depreciation Property
To be eligible for the special depreciation allowance, the property must be certain qualified property acquired after December 31, 2017 and placed in service before January 1, 2023.
Tangible property depreciated under MACRS with a recovery period of 20 years or less.
Water utility property.
Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified.
Qualified leasehold improvement property.
Qualified film, television and live theatrical productions.
Qualified reuse and recycling property.
Qualified second-generation biofuel plant property.
Nontaxable exchange
A nontaxable exchange is an exchange in which any gain is not taxed and any loss can not be deducted. If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you exchanged.
Exchange of Like-Kind Property
If the properties in an exchange are “like-kind” (similar in nature or character), and held either for:
- productive use in a trade or business, or
- for investment,
No gain or loss will be recognized on the transaction by either party.
Like-Kind Exchange with Boot
Boot is cash, other property, or the assumption of liabilities that belonged to the other party.
If boot is received as part of like-kind exchange, some gain will recognized by the recipient of the boot.
Loss is NEVER recognized in a Like-Kind Exchange.
True or False?
True.
A loss is never recognized in like-kind exchanges, even when there is boot included in the transaction.
Basis of New Like-Kind Asset (Formula)
KNOW THIS!!!!
Basis of Old Property Exchanged
+ Basis of any BOOT given
+ Gain Recognized
- FMV of BOOT Received
= Basis in the Newly Acquired Property
(NOTE: The basis of the boot received will be its FMV.)
How to calculate the adjusted basis of a new building received in a like-kind exchange.
EXPLANATION
If a taxpayer trades business or investment property for other business or investment property of a like kind, the taxpayer does not pay tax on any gain or deduct any loss until he sells or disposes of the property received. If a taxpayer acquires property in a like-kind exchange, the basis of that property is generally the same as the basis of the property transferred. With the following adjustments:
INCREASE BASIS by the total amount of:
- Additional money paid, including exchange expenses
- FMV of any non-like kind property transferred to other party
- Net liabilities assumed by the taxpayer
- Any gain recognized on the exchange
DECREASE BASIS by the amount of:
- Boot received (ie. money, FMV of non-like kind property, net liabilities other party assumes)
- Any loss recognized on the exchange
Categories of Personal Property for Depreciation
Personal property includes all tangible property that is not real property.
3-year – tractor units and race horses over 2 years old
5-year – automobiles, light trucks, computers
7-year – office furniture and fixtures
10-year – ships and water transportation
These assets are depreciated using the 200% Declining Balance Method, and then switching to a Straight Line method when the Straight Line Method results in a larger deduction.
Categories of Personal Property for Depreciation for 15 and 20 years
15-year – wastewater treatment plants
20-year – municipal sewers and farm buildings
These assets are depreciated using the 150% Declining Balance Method, and then switching to a Straight Line method when the Straight Line Method results in a larger deduction.
De Minimis Safe Harbor
A way to help a business decide if an expense should be Capitalized or Deducted.
Eliminates having to make a decision for every small expenditure a company makes.
Allows taxpayers to follow financial accounting treatment of these expenditures for tax purposes, provided the amounts deducted under their financial accounting policies adhere to specific dollar limitations.
De Minimis Limitations
The regulations provide a de minimis safe harbor limit of $5,000 per item substantiated by invoice for taxpayers that have an Applicable Financial Statement (AFS).
This limit is $2,500 for taxpayers that do not have an AFS.
This limit is a “cliff.” If you’re over the limit on any one item, you can not deduct anything. So, if an item is $3,000 and your limit is $2,500, you can deduct nothing.
Application of De Minimis
A taxpayer electing the safe harbor may deduct and may not capitalize or treat as materials or supplies amounts paid to acquire or produce a unit of tangible property, if
Has, at the beginning of the taxable year, accounting procedures that expense for non-tax purposes amounts that are paid for property that:
• costs less than a certain dollar amount; or
• has an economic useful life of 12 months or less; and
The taxpayer treats the amounts paid for the property as an expense on its books and records in accordance with its accounting procedures.
De Minimis Safe Harbor Election EXAMPLE
In 2019, you do not have an applicable financial statement and you purchase five laptop computers for use in your trade or business. You paid $2,000 each for a total cost of $10,000 and these amounts are substantiated in an invoice.
You had an accounting procedure in place at the beginning of 2019 to expense the cost of tangible property if the property costs $2,000 or less.
You treat each computer as an expense on your books and records for 2019 in accordance with this policy. If you elect the de minimis safe harbor in your tax returns for your 2019 tax year, you can deduct the cost of each $2,000 computer.
There was no AFS, but they did have an Accounting Policy followed for financial purposes.
Cost Recovery of Property
A.K.A DEPRECIATION of Property.
A tax deduction based on the original basis in the property and a predetermined useful life is allowed to recover this lost usefulness as a tax-deductible expense.
This cost recovery is depreciation (or amortization or depletion) and reduces the property’s basis.
5 Requirements for DEPRECIATING property
It must be:
- Owned by the taxpayer;
- Used in a TP’s business or income-producing activity;
- Have a determinable useful life;
- Be expected to last more than one year; and
- Not be excepted (excluded) property.
Basically, Tangible Personal Properties (eg. buildings and structures, etc)
What Defines Excluded Property (List of 6)
LEASED PROPERTY - unless the company retains the incidence of ownership for the property.
PERSONAL USE PROPERTY used solely for personal use activities (residences)
INVESTMENT PROPERTY if the income from it is NOT taxable
INVENTORY - b/c not held for use, but for sale.
LAND, though the cost of getting land ready may be able to be depreciated if connected to another asset.
Internally Generated GOODWILL (IGG), but Acquired Good Will may be able to be depreciated.
The 2 possible Tax Depreciation Systems in the USA.
Accelerated Cost Recovery System - ACRS (used for assets acquired between 1980-1986), or the
Modified Accelerated Cost Recovery System - MACRS (1987-present).
What are the 2 Categories of Property with the depreciation category?
Real property
Personal property
Categories of Real Property for Depreciation
Residential rental property – depreciated straight-line over 27½ years
Nonresidential real estate – depreciated straight-line over 39 years
Personal Property Depreciation Convention
MACRS personal property uses the MID-YEAR Depreciation convention.
Which means that no matter when you buy the asset we will take 6 months of depreciation in the year of acquisition and 6 months of depreciation in the year of disposal.
HOWEVER, If more than 40% of the total cost of property placed into service during the year is placed into service in the last quarter of the year, ALL property is depreciated under the MID-QUARTER convention.
The MID-QUARTER Convention is in place to avoid people buying assets on Dec 30th and taking a full year depreciation.
Real Property Depreciation Convention
Real property uses the mid-month depreciation convention.
Section 179 Deduction - Depreciation
Under Section 179, a company that buys $2,550,000 or less of qualifying property during 2019, may generally choose to expense up to $1,020,000 of the purchased property.
If the amount of property acquired during 2019 is more than $2,550,000, the $1,020,000 amount that may be expensed is reduced dollar-for-dollar for the amount over $2,550,000.
The 179 Deduction can not exceed taxable income. You can’t use it to create a tax loss. But it can be carried forward indefinitely.
Special Depreciation Allowance (also called Bonus Depreciation)
The Tax Code provides a special depreciation allowance for qualified taxpayers and qualified assets.
For 2019, the special depreciation allowance is 100% of the first year’s regular depreciation calculated after subtracting the 179 deduction and certain deductions and credits.
This special depreciation allowance is calculated after the Section 179 deduction and before regular depreciation.
Special Depreciation Property
To be eligible for the special depreciation allowance, the property must be certain qualified property acquired after December 31, 2017 and placed in service before January 1, 2023.
Tangible property depreciated under MACRS with a recovery period of 20 years or less.
Water utility property.
Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified.
Qualified leasehold improvement property.
Qualified film, television and live theatrical productions.
Qualified reuse and recycling property.
Qualified second-generation biofuel plant property.
Special Depreciation Property - Example
On November 1, 2019, Tom bought and placed in service in his business qualified property that cost $450,000. He did not elect to claim a section 179 deduction. He can deduct 100% of the cost as a special depreciation allowance for 2019.
Depreciation of Passenger Automobiles (cars, trucks, vans, and SUVs weighing 6,000 pounds or less)
If the taxpayer does not claim bonus depreciation, the greatest allowable depreciation deduction for a vehicle placed in service in 2019 is:
$10,100 for the first year,
$16,100 for the second year,
$9,700 for the third year, and
$5,760 for each later taxable year in the recovery period.
Bonus Depreciation for Passenger Automobiles (cars, trucks, vans, and SUVs weighing 6,000 pounds or less)
If a taxpayer claims 100 percent bonus depreciation, the greatest allowable depreciation deduction for a vehicle placed in service in 2019 is:
$18,100 for the first year ($10,100 plus $8,000 bonus depreciation),
$16,100 for the second year,
$9,700 for the third year, and
$5,760 for each later taxable year in the recovery period.
Small Taxpayer Safe Harbor Example:
Assume a taxpayer has annual gross receipts of less than $10 million and owns an office building that was purchased for $750,000. In 2019, the taxpayer pays $5,500 for improvements to the building.
As long as these expenses are no more than the lesser of 2% of the original cost (in this case, $15,000) or $10,000, the taxpayer can immediately deduct all of the costs, regardless of their nature. Because the $5,500 meets these criteria, the small taxpayer safe harbor applies.
Now assume the same facts except that the taxpayer spends $10,500 for costs related to the building during 2019. Since $10,500 exceeds the lesser of 2% of the original cost or $10,000, the small taxpayer safe harbor is not available and the taxpayer must capitalize any expenditures that qualify as improvements.
Why does this make sense? Because we’re talking small potatoes. And the difference between deducting now vs depreciating over a few years is not that big of a difference.
Listed Property
Listed property includes any property of a type generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video recording equipment).
A taxpayer cannot claim a section 179 deduction or a special depreciation allowance if business use of listed property is not more than 50%.
Note: A vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo is an excepted vehicle that is not listed property
How do you determine if the sale of a business asset is a gain or loss?
In order to determine whether the sale of a business asset resulted in a gain or loss, the seller must calculate whether the amount realized from the sale is greater or less than his adjusted basis in the asset sold. ADJUSTED BASIS is the original basis plus any additions and minus any deductions such as depreciation. In order to determine depreciation, it is necessary to know both the PROPERTY TYPE and the HOLDING PERIOD.
Note: Replacement Cost is not relevant.
Rules for Amortization of Section 197 Intangibles.
Name such Intangibles:
Generally, you may amortize the capitalized costs of section 197 intangibles ratably over a 15-year period. You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income.
Section 197 intangibles include:
- trademarks,
- patents,
- goodwill, and
- custom software.
Safe Harbor for Small Taxpayers
A small taxpayer is defined as a taxpayer having average annual gross receipts of no more than $10 million during the preceding three years.
Not required to capitalize expenditures if the total amount expended during the year does not exceed the lesser of $10,000 or 2% of the unadjusted basis of the building.
Realized Gain Calculation
FMV received
Minus Basis Given Up
= Gain Realized
Recognized Gain
The LESSER of:
Realized gain, or
Amount of boot received.
Basis of New Like-Kind Asset (Formula)
KNOW THIS!!!!
Basis of Old Property Exchanged
+ Basis of any BOOT given
+ Gain Recognized
- FMV of BOOT Received
= Basis in the Newly Acquired Property
(NOTE: The basis of the boot received will be its FMV.)
How to calculate the adjusted basis of a new building received in a like-kind exchange.
EXPLANATION
If a taxpayer trades business or investment property for other business or investment property of a like kind, the taxpayer does not pay tax on any gain or deduct any loss until he sells or disposes of the property received. If a taxpayer acquires property in a like-kind exchange, the basis of that property is generally the same as the basis of the property transferred. With the following adjustments:
INCREASE BASIS by the total amount of:
- Additional money paid, including exchange expenses
- FMV of any non-like kind property transferred to other party
- Net liabilities assumed by the taxpayer
- Any gain recognized on the exchange
DECREASE BASIS by the amount of:
- Boot received (ie. money, FMV of non-like kind property, net liabilities other party assumes)
- Any loss recognized on the exchange
What is the earliest date an S Corp status can be reinstated without IRS consent, if an election to terminate is made?
The 5th tax year after the first tax year in which the termination or revocation took effect.
Before then, IRS consent is generally required for another election by the Corp on Form 2553.
Penalties for a C Corp not filing the Due Date
Failure to File – 5% of the unpaid tax for each month that it is late, up to a maximum of 25% of the unpaid tax.
Beginning in 2018, the minimum penalty for a return that is more than 60 days late is: is the smaller of the tax due, or $215 (2019).
When must 1099-DIVs be filed to the IRS and to Recipients?
FYI - Mailed and electronic dates are different.
File Form 1099-DIV with the IRS for each shareholder to whom you have paid dividends and other distributions on stock of $10 or more during a calendar year.
You must generally send Forms 1099-DIV to the IRS with Form 1096 by FEBRUARY 28 (MARCH 31 if filing electronically) of the year following the year of the distribution. Generally, you must furnish
Forms 1099-DIV to shareholders by JANUARY 31 of the year following the close of the calendar year during which the corporation made the distributions.
C Corp Filing Requirements
Form 1120 with either:
M-1 or M-3.
DETAILS
File Form 1120 before the 15th day of the 4th month after the end of it’s tax year.
There is an automatic 6 month extension available for filing, but NOT for paying the taxes.
AND, either an M-1 or M-3 must be filed with Form 1120 to reconcile book and taxable income.
Penalties for a C Corp not filing the Due Date
Failure to File – 5% of the unpaid tax for each month that it is late, up to a maximum of 25% of the unpaid tax.
Beginning in 2018, the minimum penalty for a return that is more than 60 days late is: is the smaller of the tax due, or $215 (2019).
Penalties for a C Corp not paying the Taxes Due on time.
Failure to Pay – one-half of 1% (.005) of the unpaid tax each month.
If both penalties (failure to file AND failure to pay) are in play (late filing and not paid), it is only a maximum of 5%/month charged. This 1/2 of 1% is not added to it.
Reconciliation of Book and Tax Income - REQUIRED FILING
Schedule M-1 of Form 1120 is used as the reporting of the reconciliation between book income and taxable income.
Large and mid-size corporations have to file Schedule M-3. The M-3 is more detailed, and requires that Income and Expense differences be reported separately.
The level of detail in Form M-3 is such that, by filing Schedule M-3, taxpayers may satisfy the requirements of IRS Form 8886 “Reportable Transaction Disclosure Statement.”
True or False?
True.
Personal Holding Company Tax (2nd penalty Tax)
This tax is an additional tax in addition to regular income tax and it is designed to discourage Personal Holding Companies (PHC) from keeping certain types of passive income in the corporation rather than distributing it to the shareholders.
This is a self-assessed tax that the PHC must report by filing Form 1120 PH in addition to Form 1120.
Form 1099-DIV - when must they be furnished?
Acorporation must generally send Forms 1099-DIV to the IRS with Form 1096 by February 28 (March 31 if filing electronically) of the year following the year of the distribution. Generally, a corporation must furnish Forms 1099-DIV to shareholders by January 31 of the year following the close of the calendar year during which the corporation made the distributions. It is necessary to file a Form 1099-DIV with the IRS for each person the corporation:
- Paid dividends (including capital gain dividends) and other distributions on stock of $10 or more,
- Withheld and paid any foreign tax on dividends and other distributions on stock,
- Withheld any federal income tax on dividends under the backup withholding rules, or
- Paid $600 or more as part of a liquidation.
File Form 1099-PATR, Taxable Distributions Received From Cooperatives, for each person to whom the cooperative has paid at least $10 in patronage dividends
Avoiding Delinquent Tax Penalty as a C Corp
The delinquent tax penalty can be avoided if the estimated tax payments are at least equal to the smaller of:
100% of the current year’s final tax liability (the annualized income method), or
100% of the preceding year’s tax (the preceding year method).
Additional Penalty Taxes
In addition to income taxes, corporations may have to pay additional penalty taxes in certain situations.
The two penalty taxes that we will look at are the Accumulated Earnings Tax and Personal Holding Company (PHC) Tax.
Accumulated Earnings Tax (1st penalty Tax)
This is a tax placed on accumulated retained earnings that are greater than the reasonable needs of the business.
Corporations in general may be liable for the accumulated earnings tax and it does not matter how many shareholders the corporation has.
