Corporations Flashcards
When is revenue recognized for a corporation?
Revenue is recognized at the earlier or when earned or collected.
When are bad debts deducted?
Bad debts are deducted when they are written off.
How much can a corporation deduct for salaries and wages, payroll taxes and fringe benefits?
A corporation can deduct 100%. BUT
Can only deduct up to $1M of comp expense for each of the highest paid executive officers.
Can interest expense be deducted?
Yes, but not if the loan proceeds are used for tax-exempt investments (muni bonds)
How do corporations deduct casualty losses?
Business property - The lesser of adjusted basis immediately before the casualty or the decline in value.
How does Dividends Received Deduction work?
<20% ownership, allowed 70% deduction
>=20% to 80% ownership, allowed 80% deduction
>=80% ownership, 100% deduction
When does an investor not qualify for Dividends Received Deduction?
When the dividends are from a foreign corporation
Borrowed money to buy the investment
Received from a tax-exempt organization (muni bond)
Owned for less than 46 days.
What are nondeductible items?
Federal income taxes Government fines and penalties Costs of issuing stock Lobbying costs Compensation over $1M Club dues
How are meals and entertainment deducted?
Only 50% of meals and entertainments costs are deductible since they are considered to have personal and business elements. Other reimbursed employee expenses are fully deductible.
What is the formula for foreign tax credit?
US tax liability X (Foreign income/Worldwide income)=foreign tax credit
What is a personal service corporation (PSC)?
Performs professional services and is predominantly owned by the parties providing those services. Examples include health, law, engineering, architecture, accounting, actuary, performing arts or consulting services.
How are personal service corporations taxed?
PSC’s are taxed at a flat rate of 35%
How are owner-employees of PSC’s treated?
Owner-employees of a PSC are considered related parties, thus payments made to them may be deducted in the period in which they are taxable to the owner-employee.
What is the M-1 used for?
The M-1 is used for the reconciliation of book income to taxable income.
What is the M-2 used for?
The M-2 is used for the reconciliation of unappropriated Beginning RE to Ending RE
