Corporate Taxation Flashcards
How do premiums paid on key-person life insurance policies affect book/tax income
Premiums paid on key-person life insurance policies reduce book income but not taxable income, so this is a reconciling item for Schedule M-1 (i.e. added back for taxable income)
organizational expenses deduction
deduct the first 5,000, amortize the rest over 180 months
anything related to issuing stock does not count
C corp charitable contribution deduction
limited to 10% of taxable income BEFORE dividends received deduction (but after dividend income)
Start up vs. organizational expenses
Start up: expenses are expenses that would usually be deducted as ordinary and necessary business expenses, but they cannot be deducted because the business has not yet opened for business (like training employees before business opens)
organizational: legal fees, accounting fees, board of director meeting, fees to incorporate etc.
Each have first 5,000 deducted, with remainder amortized over 180 months. Any amount over 50,000 reduces the 5k deduction (so if there are costs of 54,000, only $1,000 can be deducted)
Can a corporation deduct vacation pay to employees?
yes:
An accrual method taxpayer can deduct vacation pay for employees in the year earned if (1) it is paid during the year, or (2) the vacation pay is vested and paid no later than 2 1/2 months after the end of the year
Corporations AMTI
When computing alternative minimum taxable income, corporations may take an exemption of $40,000 minus 25 percent of alternative minimum taxable income exceeding $150,000
When taxable income = $310,000, the exemption=$0
small corporation AMT exemption
In the first year of a corporation’s existence it is automatically exempt from the AMT.
If gross receipts exceeds 5m for the first 3-year testing window, they are not exempt. Once the small corporation exemption test is failed, then the corporation is NOT exempt for all future tax years.
Personal holding company tests
The stock ownership test is satisfied if, at some time during the corporation’s tax year, 50 percent or more of the corporation’s stock was directly or indirectly owned by five or fewer individuals
The income test is satisfied if 60 percent or more of the corporation’s adjusted ordinary gross income is personal holding company income. Personal holding company income consists of: dividends; interest; annuities; rents; mineral, oil and gas royalties; copyright and patent royalties; produced film rents; compensation for more than 25 percent use of corporate property by shareholders; amounts received under personal services contracts; and amounts received from estates and trusts.
accumulated earnings tax
income - taxes - credit - applicable dividends
The accumulated earnings tax is a penalty tax imposed on corporations that accumulates earnings and profits for the purpose of avoiding income tax for its shareholders. The accumulated earnings tax is equivalent to 20 percent of the corporation’s accumulated taxable income
When calculating the accumulated earnings tax, corporations are given a credit, the accumulated earnings credit, of $250,000 ($150,000 for certain service corporations) plus dividends paid within the first 2 1/2 months of the corporation’s tax year less accumulated earnings and profits at the end of the preceding tax year
The effect on E&P of appreciated property distributions
The distribution of appreciated property increases a corporation’s earnings and profits increase by the amount of the difference between the distributed property’s fair market value and the corporation’s adjusted basis in the distributed property.
Corporate distribution of property for E&P (how much is treated as dividend income to shareholder)
For corporate distributions of property, the amount of the distribution equals the fair market value of the property reduced by any liabilities attached to the property that are assumed by the shareholder.
