C Corporation Flashcards
C Corporation
a tax-paying entity, taxed separately from its owners, created formally in accordance with the laws of the state in which it is considered domiciled, with shareholders as holders who have LIMITED LIABILITY.
Section 351 Tax free exchange
exchanges of property or cash for equity are nontaxable, provided that stock is received and the party transferring the property and cash has control consisting of at least 80 percent ownership when the exchange is complete.
Are services allowed in a section 351 exchange
No, services are excluded and are considered taxable exchanges.
Accrual basis
requires a corporation to recognize revenues when earned, except for rents and interest received in advance, and expenses when incurred, provided they are paid within 2.5 months of the corporations YE.
Dividends received deduction (DRD)
a corporate deduction equal to a percentage of dividends received based on the level of ownership:
70 percent deduction if less than 20% of the voting stock (Unaffiliated)
80% deduction if a company owns 20% or more, but less than 80% of the voting stock of another company
100% if a company owns 80% or more of the voting stock of another company (Control)
Are federal treasury bonds taxable
Yes
Are federal treasury bonds taxable
Yes
Under tax, bad debt expense is:
Direct write off method
Holding Period
is generally just the period of time that an entity or individual has owned the asset in question.
Charitable contributions
donations made by a corporation to a charitable organization, deductible to the extent of 10% of adjusted taxable income (ATI), with any excess carried forward up to 5 years. Pledges may be accrued if paid within 3.5 months of year-end.
Adjusted Taxable income
A corporations taxable income before any deduction for charitable contributions, a dividends-received deduction, any net operating loss carry backs or any capital loss carrybacks.
nondeductible expenses
expenses incurred by a corporation that are not considered ordinary and necessary for tax purposes and are, therefore, not deductible, including fines and penalties imposed by a government, costs of issuing stock, lobbying costs, compensation of executive officers in excess of $1,000,000 per year, and club dues.
Accrual differences
items that are reported differently by an accrual basis corporate taxpayer than they will be handled for financial reporting purposes, including bad debts, warranties, contingencies, unrealized gains and losses on marketable securities
Accumulated Earnings Tax
20 percent penalty tax is imposed on a corporation for accumulating excessive retained earnings to encourage the distribution of dividends. Excessive is considered to be $250,000 for a manufacturing company and $150,000 for a personal service company
Personal holding company
a tax on the undistributed income of a corporation that has 5 or fewer stockholders and earns 60% or more of its income from passive sources, such as interest, dividends, rents and royalties. The tax on the undistributed amount is 20%.
Schedule M-1 Reconciliation
a corporations reconciliation of book (financial statement) income before special deductions - DRD and NOL Deduction) to taxable income.
Temporary differences
are bad debt expense, warranty expense, and depreciation.
Permanent differences
municipal bond interest, 50% meals and entertainment, fines, penalties, premiums paid on key person life insurance).
Section 1244 Stock
stock acquired bu a shareholder directly from a corporation with initial capital of $1,000,000 or less, losses on which are deductible as ordinary to the extent of $50,000 for a single taxpayer ($100,000 for MFJ) with the excess carried forward indefinitely and deductible as capital losses subject to the $3,000 per year limitation.
AMT for corporations
Taxes a corporate taxpayer may be required to pay, in addition to the regular income tax, when taxable income includes certain items that qualify for preferential tax treatment, or when it has been reduced by certain deductions. It is the excess of TMT over the regular tax.
AMT Adjustments and Tax preferences
Amounts added back to regular taxable income to compute AMTI, consisting of PILE, the tax exempt interest earned on PRIVATE ACTIVITY BONDS, the difference between accrual income and INSTALLMENT INCOME when the installment method was used for tax purposes for the sale of inventory, income on LONG-TERM CONSTRUCTION CONTRACTS that would have been reported under percentage of completion, and EXCESS DEPRECIATION ON PERSONAL PROPERTY over 150% declining balance when double decline was used for regular tax purpose.
Adjusted current earnings adjustment (ACE)
Additional items added to taxable income in computing AMTI, consisting of (SLIM): SEVENTY-PERCENT dividends received deduction on dividends from unrelated corporations, proceeds from LIFE INSURANCE upon the death of a key employee, and tax exempt interest on all Municipal bonds, other than private activity bonds.
