Corporate Taxation Flashcards
Initial amount of organizational expense deduction
5,000 in YR 1. Phased out if expenses exceed 50,000. Rest is Capitalized and Amortized over 180 months (15 years). Amortization includes current year and applies proportionately to months since incorporation. It must be elected or else it can’t be deducted until a corporation is liquidated.
Life Insurance Premiums for employees by corporations are (blank) for tax purposes and (blank) for reporting purposes
deductible, deductible
Organizational expenses include:
Legal Services, Meetings, Incorporation Fees (Attorney Fees)
Start-Up expenses tax treatment is:
$5,000 is the deduction but it is reduced by the extent of the expenses that exceed $50,000. The rest is amortized over 180 months beginning the first month that business begins. Apply proportion. Amortization includes the current year.
Dividends Received Deduction vs Charitable Contributions, who’s first?
Charitable Contribution 10% limit is considered before applying the DR Deduction, add dividend income back in to calculate CC deduction and then apply the deduction.
CC carryback and carryfoward in years.
Can’t be carried back, 5 year carry forward.
Expenses paid off will change amortization method. Additional expenses in later year will add o the amortization. (T/F x 2)
FALSE, FALSE
Dividends Received is limited to:
70/80% (or applicable percent of deductible expense) of taxable income before the deduction. Add dividends back to get taxable income first to determine if there is a limit and then apply the deduction rules.
Corporate Tax formula is:
Gross Income minus deductions. Deductions does not include CC, DR, DPD, NOL and capital loss carryback.Then CC then DR Deduction then DPD, NOL carryback and STCL carryback.
Capital gains are (blank) Capital losses are deductible (blank)
fully taxable, to the extent of capital gains. The excess is carried forward as STCL for 5 years.
Life insurance premiums are not deductible for a corporation IF:
They are the beneficiary.
What can prevent DIV received deduction:
- Held under 46 days.
- Dividend from passthrough entity
- Derived from interest paying securities
- Capital Gains dividend
- Exceeding the applicable limit
Domestic Production Deduction
Limited to 9% the lower of:
- Qualified Production Activity Income
- Taxable Income
QPAI calculated with the gross income from domestic production (Gross Receipts minus COGS, Direct expenses such wages and pro-rated indirect expenses)
Cannot exceed 50% of wages allocable to domestic production
Corporate tentative tax in excess of regular tax is:
Payable in addition to regular tax as AMT. Credit can be taken in subsequent years but cannot be carried back.
Determining exemption from AMT rules:
First year is always exempt. The subsequent tax is to determine if year one gross receipts exceeds the $7,500,000 threshold for a three year window prior to the current tax year. It is $5,000,000 for year two, comparing to year one. If it does, there is no more exemption for subsequent years.
AMT exempt portion formula:
40,000 - (.25)(AMT - 150,000)
ACE adjustment rules:
75% increase of ACE - AMTI or 75% decrease of AMTI - ACE limited to aggregate of the + adjustments from prior years minus previously claimed negative adjustments.
Personal holding company rules:
5 or fewer individuals directly or indirectly own 50% or more of a domestic company. Indirect ownership can occur is direct family members (brother, sister, spouse, linear ancestors) own the stock or if they are the beneficiary of an estate or a partner in a partnership. PHC are subject to a 15% penalty tax on undistributed personal holding company income.
Personal Holding Company Income Test:
Income test is satisfied is 60% of the corporation’s adjusted ordinary gross income is PHC income.
PHC income consists of: dividends, interest, annuities, rent, mineral oil and gas royalties, copyright and patent royalties, produced film rent, compensation for more than 25% use of corporate property by shareholders, personal contracts and amounts for estates and trusts.
Accumulated earnings credit is the greater of:
- $250K - BOY E&P
- Earnings needed for reasonable business needs
The excess of the taxable income minus dividends paid and this credit is taxed at the current top tax rate of on dividend income (20%)
Adjustments from taxable income include:
Adding DRD and NOL and subtracting Fed Taxes, Excess CC and Net Capital Losses
Advantages of filing a consolidated return:
- Intercompany dividends are 100% excludable.
- Losses of one affiliated member offset gains from another.
- Intercompany profits are deferred until realized
Corporations qualify as members of an affiliated group by:
Having a common parent who owns at least 80% of the total voting stock AND at least 80% of the total value of the stock in at least one other includible corporation.
A minimum of one of the other includible corporations must own at least 80% in each of the remaining corporations. A corporation can file a consolidated return without issuing an audited financial statement on a consolidated basis. Test has to be met every day of the tax year.
Insurance, Foreign and S-Corps are not eligible to be in an affiliated group.
Parent-Subsidiary Rule
80% of voting stock power OR value of corporation. Can consolidate the percentage if both are in the same group. Common Parent has to own at least 80% of one of the other companies. Tested on last day of tax year.
