Corporate Income

Question 1

What purpose does a Schedule M-1 serve?

Answer 1

A reconciliation of book income to taxable income.

Question 2

How is nontaxable income included in book income treated on a Schedule M-1?

Answer 2

Subtracted from book income.

Question 3

What is the basis of accounting that is required for most corporations?

Answer 3

Accrual.

Question 4

List the exceptions to the accrual accounting requirement for corporations.

Answer 4

1. Small corporations (average gross receipts less than $5 million);
2. Personal service corporations;
3. S corporations.

Question 5

List the characteristics of a net operating loss.

Answer 5

1. Negative taxable income carried forward from other tax years;
2. Carryover period is back 2 and forward 20;
3. Carryovers from previous years are not included in calculating current year NOL.

Question 6

Define “personal service corporation.”

Answer 6

A corporation whose principal activity is the performance of personal services performed by employees who own substantially all of the stock.

Question 7

Describe the corporation fiscal-year rule.

Answer 7

Corporations can choose a fiscal year unless the corporation makes an “S” election or qualifies as a “personal service corporation.”

Question 8

How are nondeductible expenses treated on a Schedule M-1?

Answer 8

Added to book income.

Question 9

How is income that is taxable but not included in book income treated on a Schedule M-1?

Answer 9

Added to book income.

Question 10

How are deductions not expensed in book income treated on a Schedule M-1?

Answer 10

Subtracted from book income.