Chapter 12 – Corporations & Corporate Income Tax Flashcards
The transfer of property to a corporation will not be taxed under what 2 conditions.
- It’s transferred for stock
2. Immediate control of company after the transfer.
If you transfer property/cash to a corporation and they give you stock in exchange, how much will your basis be in the stock?
The basis in the stock is equal to the basis in the property transfer.
What is the formula to determine the taxable income for a corporation?
gross Income – deductions = taxable income
If a corporation has an ordinary loss, that loss can be carried backwards up to ____ years and carried forward up to ____ years.
2 years
20 years
For corporations, are losses carried backward or forward first?
Carried backward first.
Can a corporation choose not to carry a loss backward?
Yes
Corporations can “only” use capital losses to offset…
capital gains.
Unused capital losses can be carried back up to ____ years and carry forward up to ____ years.
3
5
Charitable donations corporations are limited to…
10%.
If a corporation receives a dividend from another company, who gets the deduction?
The corporation receiving the deduction.
“Start-up cost” or organization expenditures are deductible up to $______.
$5,000
Excess start-up cost expenditures over $5,000 must be capitalized and amortized over a ___ month period.
180
What are 3 start-up cost expenditures?
legal fees
accounting fees
administrative fees
Personal service corporations are taxed at what rate?
flat 35% rate.
Personal service corporations are corporations that 95% of their stock is held by…
active or retired employees
Personal service positions are:
Health
Engineering
Architecture
Law
Accounting
Performing arts
Actuarial science
Consulting
This type of company derives at least 60% of their income from investments.
personal holding company
A personal holding company is used to place income with a corporation to prevent shareholders from being…
taxed on a personal level.
There’s double taxing! Not only does a personal holding company have to pay regular income tax, but an additional tax is imposed at a flat ____% rate.
20%
A personal holding company’s flat 20% additional tax rate applies if more than 50% of the stock is…
held by five or fewer individuals.
What type of organization is exempt from the personal holding company additional tax rules?
life insurance companies
A penalty that is imposed on a business earnings that accumulate beyond their reasonable needs. This tax is to prevent shareholders from accumulating earnings within the company to avoid taxation resulting from dividend distributions. This is also used to avoid double taxation of dividends.
Accumulated Earnings Tax
What is the maximum amount a company can accumulate without getting an Accumulative Earnings Tax penalty?
$250,000
What can a company do to prevent getting the Accumulated Earnings Tax?
Show a legitimate reason for the accumulation with their records
(key person life insurance, business expansion, and retirement is not a good reason)
What is the Accumulated Earnings Tax design to enforce?
The distribution of retained earnings at the point where they no longer serve a legitimate business purpose.
This type of corporation allows income and losses to flow through the company directly to the shareholders.
S-Corporation
What are the three advantages of a S-Corporation?
- Limited liability
- double taxation
- No Accumulated Earnings Tax and Personal Holding Company Tax
How would a corporation become an “S”?
when the company is set up elect to be taxed as a “S” with the IRS.
A “S” corporation, once elected, is effective…
indefinitely (forever).
A “S” corporation election is a good way to allow for deduction of start up losses on the tax returns of…
individual shareholders.
A requirement to become an S corporation is that the company has to be ___________ based.
domestically
A requirement to become an S corporation is that the company has to be limited to…
100 shareholders.
Family members represent 1 shareholder
A requirement to become an S corporation is that the company can only have ______ class of stock outstanding.
1
A requirement to become an S corporation is that only certain types of shareholders are allowed. Who “are” the three?
- Individuals
- Estates
- Certain Trust (grantor, voting, qualified subchapter S trust)
Based on the S corporation requirements who are 3 types of shareholders that are “not” considered shareholders?
- Nonresident aliens
- Partnerships
- Corporations
