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Roger's Reg > Corporate Tax- C corps- Section 2 > Flashcards

Corporate Tax- C corps- Section 2 Flashcards

1
Q

Things to know

A

10% of ATI for charitable contributions

Dividends received deduction drd 70% 89% 100%

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2
Q

Tax form for c Corp

A

1120

Due 4/15 3/15???

If calendar year a 5 month extension

If fiscal year a 6 m .. fiscal is any 12m- 52-53 weeks, ends on the same day but does not have to end on the last day of the month* asked

A lot will be accrual- when rev when earned and expenses when incurred

Limited liability for members

Tax paying entity-

Article of Corp filed for it

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3
Q

Special deductions- love to test them

A

Charitable contributions - 10% of ATI

Drd- dividends received deduction : government loves to tax , dividends aren’t deductible but dividend income is taxable. Depending on how much stock of the Corp you own they will give you a 70% dividends received deduction an 80% or 100% if control . So all tax free at 100% .

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4
Q

Phc

A

Personal holding company tax
Tried to get taxed as Corp instead of individual bc rate is lower

Kinda penalty tax like accumulated

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5
Q

Accumulated earnings tax

A

Government limits what Corp accumulates

Corp wants to accumulate bc paying out means double taxes as dividends since income is taxed . They want to invest and make more money instead of having it taxed

Make money , pay tax then pay a dividend which gets tax too

So it is penalized- then amt

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6
Q

Formation of c Corp / CONTROL

A

Shareholder transfers in to get stock
Roger cpa formation example- it is an extension of him bc he put in his money to create and wasn’t taxed. Therefore has CONTROL.

No gain or loss reported if transfer causes transferor to be in control - tax free exchange. Non event
Transfer in at carryover basis and carryover period

If cash given 70%, property 20%, services 10%.. the two with cash and property is 90% so they have control so non taxable

Greater or equal to 80% is control

Services aren’t property, not cash, like bartering, so taxable

So if person still gets like 20% of stock others wouldn’t have 80% so theirs would be taxable since no control

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7
Q

Non event

A

Not taxable. For carryover basis and carry over holding period.

Ex held prop for 10y and transferred, for stock and Corp has asset that has long term for 10y and a day. Basis is 10$ so still basis but can be sold for fmv

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8
Q

Wage transaction

A

Services

Taxable for fmv of stock

Or if no control less than 80% of stock, it is also a wage expense to Corp

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9
Q

Services

A

Taxable

Subject to SE and SSI tax depending on if employee or independent contractor

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10
Q

Property

A

Tax basis : if in control or part of in control

Or

Fmv: if their share percentage for cash and property is less than 80% then taxable which leads to everything at FMV

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11
Q

Non recognition of gain

A

Applies to amounts transferred solely in exchange for stock , if shareholder receives chase or property with stock then gain is recognized up to amount of cash or fair value of other property received. Includes securities. Boot.

Corp gain is carryover basis plus gain recognized . They recognize the portion of the gain for boot.

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12
Q

Shareholder contributes liability

A

The basis is reduced by liability relief

If liability is greater than basis then gain is recognized.

When they sell the stock, it’ll be a bigger gain, basically balancing off with the Corp

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13
Q

Revenues

A

Recognizes at the earlier of when earned or collected

Cash xxxx
Revenue xxxx

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14
Q

M1 reconciliation

A

Between income per books and income per tax

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15
Q

Life insurance

A

If Corp is the beneficiary, can’t take the deduction since premiums are not taxable .

If premiums are for the families , then payments are deductible . Fringe benefit

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16
Q

Organizational expenses

A

Up to 5k

Phases it after 50k dollar for dollar
The rest amortizable 180 months. Must start that month or they are capitalized until the entity is liquidated
Brain expenses.

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17
Q

Additional paid in capital

A

For stock- cost of issuing.

So debit apic
Cash xxxx

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18
Q

Salaries wages fringe benefits and payroll taxes

A

Deduct up to 1M for too 5 executive officers of Corp - form 11-25E

This is apart from employees

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19
Q

Entertainment expenses for officers, directors 10% plus owners

A

Deducted to extent that included in individual gross income. return

Salaries and wages. Can accrue as long as paid within 2.5 months of year end. Same with vacay

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20
Q

Estimated loss

A

Not deductible until actual loss

Direct write off for tax, for book its allowance

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21
Q

Interest expense

A

Not deductible if loan proceeds are to buy tax exempt expenses

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22
Q

Casualty, reimbursed employee expenses

A

50% meals and entertainment

For casualty losses there’s no floor or agi percentage?

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23
Q

Goodwill franchise trademarks

A

Amortized over 15 years

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24
Q

Fees fines penalties

A

Never deductible

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25
Q

Federal and state taxes deductible?

A

Only state and local

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26
Q

R&D

A

Expense immediately or over a minimum of 60m

Usually 60 m bc no rev to offset

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27
Q

Dividends * DRD

Special deduction .

A

Government loves double taxation and triple

To minimize multi tax problem, government created the DRD

Dividends received deduction depends on how much you own-
First, if you own Greater or equal to 20% but less than 80% we’ll give you and 80% DRD - of 100$ dividend, 80 will not be taxed but 20 will be taxed

Investor doesn’t qualify if from foreign Corp, borrowed money, received from tax exempt bond, and if you held it less than holding period. Rare exception: to 70 and 80 percent rule, if drd is less than taxable income and that is less than dividend, then you only get 80% of dividend, not taxable income. See example “when it falls in the middle

Then drd of 70% for people who owe less than 20% of the stock

If 80% or more which is control, you can consolidate,

28
Q

Charitable contributions

A

Limited to 10%of income before deductions- ATI

Carry forward 5 years

29
Q

ATI-

A

Net income, adjusted by charity , drd, nol-capital loss

Income before special deductions

Not net income,

30
Q

Ordinary asset

A

Current asset

35%

31
Q

1231 asset

A

Non current, over a year

Gain - capital gain

Loss : ordinary loss

32
Q

Capital

A

Not ordinary and not 1231. Not business asset

Always
Short term

Zero net capital loss - offset against capital gains , not deductible

Cap- back 3 years

Gains - 5 years forward

33
Q

NOL

A

Expenses exceeded revenue

Sideways NOL.

Back 2 forward 20

Amend return for past 2 years to offset

Carry forward 20

34
Q

Deduction vs credit

A

Deduction is before tax- can lead to liability

Credit is after tax- can lead to no liability - dollar per dollar deduction

35
Q

Foreign tax credits

A

Us tax liability x foreign income/total income = tax credit

Example was 6$ credit and foreign tax as 8$ so the remaining 2$ is what is carried forward or back

36
Q

Charitable contributions

A

Limited to 10%of income before deductions- ATI

Carry forward 5 years

37
Q

ATI-

A

Net income, adjusted by charity , drd, nol-capital loss

Income before special deductions

Not net income,

38
Q

Ordinary asset

A

Current asset

35%

39
Q

1231 asset

A

Non current, over a year

Gain - capital gain

Loss : ordinary loss

40
Q

Capital

A

Not ordinary and not 1231. Not business asset

Always
Short term

Zero net capital loss - offset against capital gains , not deductible

Cap- back 3 years

Gains - 5 years forward

41
Q

NOL

A

Expenses exceeded revenue

Sideways NOL.

Back 2 forward 20

Amend return for past 2 years to offset

Carry forward 20

42
Q

Deduction vs credit

A

Deduction is before tax- can lead to liability

Credit is after tax- can lead to no liability - dollar per dollar deduction

43
Q

Foreign tax credits

A

Us tax liability x foreign income/total income = tax credit

Example was 6$ credit and foreign tax as 8$ so the remaining 2$ is what is carried forward or back

44
Q

Accumulated earnings tax

A

Corp- holds money, so government doesn’t have taxable income they can get income tax from - 20%

If Corp accumulates too much, then the Corp gets penalized .

Can accumulate for expansion and debt hurt not to avoid taxes, or loans to shareholders

Comes from audits . Appropriated in a schedule, u appropriated amount is checked agains allowed amount

Shareholder can pay the consent divided , tax as if they got the dividend. They’re willing to bc basis in the co goes up

Or if phc is paid .

Not self assessed

Penalty tax

45
Q

Safe Harbor

Reduces or eliminates penalty

A

250k + federal taxes due - manufacturing

150k for service company for personal services

46
Q

Phc

A

Personal holding company tax- penalty tax

Individuals would incorporate to avoid tax rates , would take out stock , would get taxed at 35% instead of 39.5% for individual.

Phc if:

Gross income test : greater or equal to 60% is from passive activity- taxable, so wouldn’t include muni bonds. Includes like rental etc

Alter ego test : number of people , if less or equal to 5 own greater than 50% of the stock and 60% of the revenue from passive sources like taxable interest, dividends, rental, royalty,then tax in uphci is gonna be taxed at 20%.

Self assed on form 1120 phc
Avoided by actual dividend or consent divided

47
Q

Penalty taxes

A

Phc & accumulated earnings tax

48
Q

M1 reconciliation

A

Reconcile between book income and taxable income.

Temporary and permanent adjustments

Reconciaking to income before
special deductions - DRD NOL

Purpose is to identify for Irs amounts reported differently between GAAP and for tax . Calculation begins with book, then increased and decreased by items that cause taxable income to be higher or lower both temporary and permanent. Temp, bad debt, warranty, depreciation.

49
Q

Temporary

A

Timing or temporary difference

50
Q

Permanent

A

Never taxable or never tax deductible

Like expenses for Corp beneficiary life insurance

51
Q

M2

A

Basically a recon of inappropriate data retained earnings

Retained earnings plus or minus prior period adjustments equals adjusted beginning plus net income minus dividends equals retained earnings

Statement of retained earnings

Government wants to squeeze more money

52
Q

M3

A

Temporary and permanent differences

Companies with assets of 10m or more

So they look at details

Depletion
Depreciation

Own line items

53
Q

Corporate distributions**

A

When you receive you want to call it return of capital-
Irs wants to call it dividend

EARNINGS- taxable
Current CEP :

Accumulated AEP

RETURN OF BASIS/capital- not taxable

Go over section

Tricky with property :

54
Q

Stock redemptions

A

Repurchase of shares from a shareholder treated as exchanges resulting in cap gain or loss treatment to the shareholder

55
Q

Non liequdated

A

Just making distribution: taxed on gain but no loss deduction

For shareholder ordinary income- gain or loss . Up to e&p

Rest is return of basis

56
Q

Liquidating

A

Closing up

Ordinary gain or loss for Corp

For shareholder is capital gain or loss

Proceeds minus basis is cap gain or loss

57
Q

Exception to liquidating distribution

A

When subsidiary To parent then no gain or loss , tax free exchange . Everything carryover basis

58
Q

Corp reorganization

A

Tax redetermination

Carryover basis

59
Q

Mergers and acquisitions

A

Carryover no gain or loss unless boot

60
Q

Consolidate

A

Inter company transactions are consolidated

Get rid of drd

61
Q

Section 1244 stock

A

To encourage businesses

Most start ups fail. If you are part of the first million of stock then if well capital gain, if bad 50k ordinary loss . The rest you carry as capital loss 3000 indefinitely

Only applies to first 1M sold by original investor

62
Q

AMT

A

4 adjustments that show you

Start with taxable income

Plus or minus preferences or adjustments : Lupe

Usually and increase of taxable income , amti before ace

Plus ACE : slim about 75%
Equals amti before exception 
- exemption 
Amti 
X rate lower bc they took some benefits

Gives alternative minimum tax

63
Q

PILE

A

Preferences and adjustments

Private activity bond interest : type of mini bond but is private. To finance non govt or student loans etc

Installment sales of inventory : accrual, installment sales vs accrual

Long term construction contract : calculated using percentage of completion

Excess depreciation on personal property : excess over 150 declining when double was used

64
Q

SLIM

A

Adjusted current earnings

75%

S is 70% DRD , they add it back , not all 3/4 of the 70%

Life Insurance proceeds -

Muni bond interest - municipality ,

65
Q

Exemption

A

400k
Reduces by 25% of amti before exemption minus 150k

So if 200k, it loses 25% of 50k

Roger's Reg (14 decks)

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