Chapter 20

Question 1

What is retained earnings called in tax

Answer 1

Earnings and Profits or E&P

Question 2

Charity deductions of corporations are limited to what?

Answer 2

10%

Question 3

Charity deductions of taxpayers are limited to what?

Answer 3

60%

Question 4

An individual buys $100 in stock. Corporation has $987 in earnings and profits and pays out $321 dollars. How much is considered a dividend?

Answer 4

$321

Question 5

An individual buys $750 in stock and a corporation has $350 in earnings and profits. The corporation pays out $450. How is this transaction ordered?

Answer 5

Distributions in excess of E&P are return of capital until basis is zero. The first $350 of payment is dividend, the additional $100 is return of capital

Question 6

An individual buys $750 in stock and a corporation has $350 in earnings and profits. The corporation pays out $1200. How is this transaction ordered?

Answer 6

Distributions in excess of E&P are return of capital until basis is zero. After distributions are LTCG. $350 is dividends, $750 return of capital, $100 LTCG.

Question 7

How are dividends treated for taxes in corporations?

Answer 7

Distributions to shareholders for E&P are treated as dividend income. Distributions in excess of E&P are return of capital and reduce stock basis (NOT TAXED). After basis is zero the rest is LTCG