Corporate Taxable Income Flashcards
What kind of cash received in advance of accrual GAAP income is taxed?
Interest income, royalty income, and rental income (includes lease cancellation payments and nonrefundable rent deposits)
What kind of GAAP income is not included in taxable income?
Interest income from municipal or state bonds and life insurance proceeds on the life of a corporate officer when the corporation is the beneficiary
When is the accrual basis of accounting for tax purposes required?
Purchase and sale of inventory provided the business has greater than $27m of average annual gross receipts for the 3yr period ending with the preceding tax year (same goes for certain farming corporations and C corporations/trusts with unrelated trade or business income and partnerships with a C corporation as a partner)
Tax shelters
What method is used for accrual basis taxpayers in regard to bad debt?
The direct write-off method (write off bad debts as they come worthless or partially worthless)
The allowance method is still required for financial accounting purposes, but it is not allowed for calculating the income tax deduction
Corporations making contributions to qualifying charitable organizations are allowed a maximum deduction of _____ of their taxable income. Any disallowed charitable contribution may be carried forward for _____. Any accrual must be paid within _____ of the taxable year-end to be deductible.
10% / 5yrs / 3.5 months
total taxable income for purposes of the charitable contributions limit is calculated before the deduction of:
any charitable contribution deduction
the dividends-received deduction
any capital loss carryback
How much of organizational costs and start-up costs can a corporation elect to deduct up front?
$5,000 for each…any excess costs are amortized over 180 months beginning with the month in which active trade or business begins
costs include: legal services to draft corporate charter, bylaws, minutes or organization meetings, fees paid for accounting services, and fees paid to the state of incorporation
How much of business gifts are deductible?
up to $25/recipient per year
True or False: a change in inventory method is a change in accounting method and must be approved by the IRS
True
What are the dividends-received deduction (DRD) percentages?
0% to <20% ownership = 50% DRD
20% to <80% ownership = 65% DRD
80% or more ownership = 100% DRD
the corporate shareholder must own the investee stock for at least 46 days
How is the DRD calculated?
It equals the lesser of:
50% (or 65%) dividends received or 50% (or 65%) of taxable income computed without regard to the DRD, any NOL carryforward, or any capital loss carryback
What entities are not eligible for the DRD?
personal service corporations
personal holding companies
(personally taxed) S corporations
