Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Corporate Tax > Ch 3 part 1 > Flashcards

Ch 3 part 1 Flashcards

0
Q

Who can use fiscal year tax reporting?

A

Only C Corporations

Usually Not S Corporations or personal service corporations,
Must establish business purpose to adopt fiscal year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
1
Q

Short-period tax return

A

Corporation must file a short period tax return if its filing for under
A 12 month period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Personal Service Corporation

A

Corporation whose principal activity I’d performance of personal
Services by its employee owners who own over 10% of stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

General Equation for determining: corporate income tax

A

Gross income - deductions and losses
= taxable income before special deductions
- special deductions
= taxable income
X corporate tax rate
= regular tax before credits and other taxes
- (foreign tax credit and possessions tax credit)
= regular tax
- other tax credits
+ recapture of previously claimed tax credits
= income (regular) tax liability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Alternative minimum tax (AMT)

A 
Taxable income before NOL deduction
\+/- adjustments to taxable income
\+ tax preference items
- alternative tax NOL deduction
= alternative minimum taxable income
- statutory exemption
= tax base
X 20% tax rate
= tentative minimum tax before credits
- AMT foreign tax credit
= tentative minimum tax
- regular income tax
= alternative minimum tax (if greater than 0)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Accrual tax method

A

Corporation reports income in year it earns it and reports

expenses in year it incurs the expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

4 exceptions that allow corporation to use the cash method

A

1 qualifies as family farming corporation
2 qualifies as personal service corporation (health, law, accounting)
3 avg. 3 year receipts was under $5 million
4 has elected S corporation status

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Cash method accounting for taxes

A

Corporation reports income when it actually or constructively
Receives income and reports expenses when it pays them

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Difference of Corporations vs. Individuals: Gross Income

A

Exclusions for fringe benefits available only to individuals

Exclusions for capital contributions available only to corporations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Difference of Corporations vs. Individuals: Deductions 4

A

Individuals have for AGI deductions, from AGI deductions
And personal exemptions

Corporations don’t compute AGI: their deductions are presumed
Ordinary and necessary business expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Difference of Corporations vs. Individuals: Charitable Contributions 2

A

Individuals limited to 50% AGI (30% for capital gain property)

Corporations limited to 10% of taxable income without Dividends received deduction, US production activities deduction, NOL
and capital loss carry backs and contribution itself

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Difference of Corporations vs. Individuals: Depreciation on Sec. 1250 property 3

A

1 individuals generally don’t recapture depreciation
2 individuals subject to 25% to 28.8% tax rate on unrecapture
Sec. 1250 gains
3 corporations must recapture 20% of amount that would be
Recaptured under sec. 1245

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Difference of Corporations vs. Individuals: net Capital gains

A

1 individuals get favorable rates

2 corporations taxed at corporate tax rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Difference of Corporations vs. Individuals: capital losses

A

Individuals get $3000/ year deduction and can carry forward indefinitely

Corporations can carry back capital losses 3 years
and forward 5 yrs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Difference of Corporations vs. Individuals: dividends received deduction

A

70%, 80% or 100% only available to corporations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Difference of Corporations vs. Individuals: NOL

A

Complex for individuals to realize a NOL, they are allowed to
Carry back or forward

corporations NOL is excess of deductions over income for year
Can elect to carry back two years or carry forward 20 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Difference of Corporations vs. Individuals: production activities deduction 2

A

For individuals it’s based on lesser of qualified production
Activities income or AGI

for corporations it’s based on lesser of qualified production
Activities income or taxable income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Difference of Corporations vs. Individuals: tax rates

A

Individual rates are 10% to 39.6%

Corporate rates are 15% to 39%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Difference of Corporations vs. Individuals: Alternative Minimum Tax 3

A

1 individual AMT rates are 26% or 28%
2 corporate AMT rate is 20%
3 corporations subject to AMTI adjustment called adjusted current earnings (ACE)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Difference of Corporations vs. Individuals: passive losses

A

Passive losses apply to individuals, partners, s corporations and
Closely held C corporations

They don’t apply to widely held C corporations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Difference of Corporations vs. Individuals: casualty losses

A

Casualty losses are deductible in full by a corporation because
Corporate casualty losses are business related

Individuals reduce casualty losses by $100 and are restricted
To losses exceeding 10% or AGI

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Corporations: capital gains and losses position

A

Corporations must net all capital gains and losses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Corporation net capital loss, what can it be used to offset

A

Can only offset capital gains, can’t offset ordinary income

Corporation can carry back as short term capital loss 3 years
And carry forward as ST capital Loss 5 years ( they expire after 5 years)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Corporate ordinary business deductions 9

A 
1 salaries of officers and employees
2 rent
3 repairs
4 insurance premiums
5 advertising
6 interest
7 taxes
8 losses on inventory/property, bad debts
9 depreciation
24
Q

What 4 expenses are not allowed to be deducted as ordinary business expenses

A

1 no deduction on interest borrowed to purchase tax-exempt securities
2 illegal bribes or kickbacks
3 fines or penalties to the government
4 insurance premiums to insure lives of officers and employees
Where corporation is the beneficiary

25
Q

Organizational expenditures

A

Outlays made in forming the corporation legal and accounting
fees incurred in the incorporation process

Expenditures normally must be capitalized

26
Q

Amortization of organizational expenditures under section 248

A

Corporation may elect to deduct first $5,000 of organizational expenditures as long as expenditures don’t exceed $50,000
Deduction is reduced by amount exceeding $50,000

Amortize over 180 months

27
Q

specific organizational expenditures: legal services incident to corporation’s organization 3

A

1 drafting the corporate charter and bylaws
2 minutes of organizational meetings
3 terms of original stock certificates

28
Q

4 specific organizational expenditures

A

1 legal services incident to corporations organization
2 accounting services necessary to create corporation
3 expenses of temporary directors and organizational meetings
Of directors and stockholders
3 fees paid to state of incorporation

29
Q

Start up expenditures, define

A

Outlays that would otherwise be considered Ordinary and
necessary business expenses paid/incurred by Individual or
corporate tax payer

Can deduct first $5000 in first year on amount less than 50K
Expenditures amortized over 180 month period

30
Q

3 objectives of start up expenditures

A

1 investigate the creation or acquisition of active trade or business
2 create active trade or business
3 conduct an activity engaged in for profit or production of
Income before the time the activity becomes active trade/business

31
Q

Common startup expenditures 6

A 
1 costs to survey potential markets
2 analysis of available facilities
3 advertisements relating to opening the business
4 training of the employees
5 hiring of management personnel 
6 outside consultants
32
Q

Startup expenditures and organizational expenditures: what can be elected instead of amortizing over 180 month period?

A

The corporation can elect to capitalize the expenditures without
Any amortization

33
Q

3 ways that treatment of charitable contributions by individuals and corporate tax payers differ

A

1 timing of deduction

2 amount of deduction permitted for contribution of certain
No cash property

3 maximum deduction permitted in any given year

34
Q

Timing of corporate charitable deductions, what is the general rule?

A

Contribution must be paid during the year of deduction

Not just pledged

35
Q

Timing of corporate charitable deductions: what is the special rule for corporations that use accrual accounting method? 2 conditions

A

These corporations may elect to have part or all of charitable
Contribution having been made in year accrued instead of paid

1 Board of directors authorizes contribution in year accrued
2 corporation pays contribution by March 15th of following year

36
Q

Corporate charitable deductions of non monetary property

A

Charitable deduction equals donated property’s FMV

37
Q

Ordinary income property

A

Property whose sale resulted in ordinary income or short term
Capital gain

Ex. Investment property held less than 1 year, inventory property,
Property subject to depreciation recapture under sec. 1245 and
1250

38
Q

Charitable deduction limitation for ordinary income property

A

Limited to:
Charitable deduction =
property’s FMV - (ordinary income or short term capital gain)

39
Q

Special case for inventory, scientific research, college fund, equation for charitable deduction

A

Charitable deduction =

adjusted basis + 1/2 x (FMV - adjusted basis) this cannot exceed twice the adjusted basis)

40
Q

When a corporation donates appreciated property whose sale would result in a long term capital gain, what is the contribution deduction?

A

The contribution deduction equals the property’s FMV

41
Q

When is capital gain property restricted to the property’s: FMV - Longterm capital gain related to the property’s sale?
3 situations

A

1 corporation donates an intangible asset
2 tangible property donated and organization uses it for different
Purpose
3 corporation donates appreciated property to certain private
No operating foundations

42
Q

Substantiation requirements for donations 3,

note 2nd and 3rd requirements don’t apply to cash, publicly traded securities, vehicles

A

1 donations over $500, corporation must include its description
On tax return of property
2 donations over $5,000 corporation must obtain qualified
appraisal and include in tax return
3 donations over $500,000 must attach qualified appraisal to
Tax return

43
Q

Corporate limitation on charitable deduction, what 5 items are not included in the limitation?

A

10% of adjusted taxable income,

1 charitable contribution deduction
2 NOL carry back
3 capital loss carry back
4 dividends received deduction
5 US production activities deduction
44
Q

How long does a corporation have to use charitable contribution carry forwards?

A

5 years

45
Q

What 3 special deductions are C corporations allowed?

A

1 US production activities deduction
2 dividends received deduction
3 NOL deduction

46
Q

US Production Activities Deduction equation

A

9% x lesser of:
qualified production activities income
Or
Taxable income before US production activities deduction

47
Q

What is a main limitation on the US production activities deduction?

A

Deduction can’t exceed 50% of corporation’s W2 wages allocable
To US production activities

48
Q

Dividends received deduction, financial reporting

A

Not reported deduction not included in financial accounting

income, dividends are included

49
Q

Dividends received deduction rules

A

Corporations that own less than 20% can deduct 70% dividends
Corporations that own over 20% can deduct 80% of dividends

Corporations that own 80% with voting power can deduct
100% of dividends

50
Q

Limitation on dividends received deduction (for less than 20% owners)

A

Limited to lesser of 70% of dividends received

Or 70% of taxable income computed without regard to NOL
Deduction, capital loss carry back, dividends received deduction
Itself

51
Q

Dividends received deduction and net operating loss

A

If a net operating loss occurs, you can take the full deduction
Of 70% x dividends received

You can also take the dividends received deduction if the taxable
Income is less than 70% x dividends received

52
Q

Members of affiliated groups of corporations

A

Group of corporations is affiliated if parent corporation owns
At least 80% of stock of at least one subsidiary corporation

And at least 80% of other corporation is owned by other
Group members

53
Q

Foreign corporate dividends

A

The dividends received deduction doesn’t apply to dividends

From foreign corporations

54
Q

Dividends received deduction: when stock is held less than 46 days

A

Can’t take deduction

55
Q

Debt financed stock regulation

A

Dividends received deduction isn’t allowed for stock bought

With borrowed money

56
Q

What deduction is disallowed when a company experiences a NOL?

A

US production activities deduction is disallowed

57
Q

Sequencing of deduction calculations 5

A 
1 all deductions other than charitable contributions, dividends
Received, NOL, US production activities 
2 charitable contributions deduction
3 Dividends received deduction
4 NOL deduction
5 US production activities deduction
58
Q

NOL Carry back: charitable deduction

A

NOL carry back from a later year won’t affect a charitable
deduction from a previous year

A carryover from a previous year will reduce the charitable
Contribution deduction

Corporate Tax (23 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions