Entity Taxation Flashcards
Requirements of a Personal Holding Company (PHC)
- Owned by more than 50% by 5 or fewer individiduals at any time during the last half of the tax year
- 60% of adjusted gross income is PHC income
What is a personal holding company (PHC)?
A corporation that primarily generates passive income rather than actively conducting a business, therefore a PHC is subject to additional tax if income is not distributed
A Personal Holding Company’s adjusted gross income includes NIRD which is…
Think “passive” income
N - Net Rent (if less that 50% of ordinary gross income)
I - Interest that is taxable (nontaxable is included)
R - Royalties (not mineral, oil, gas, or copyright)
D - Dividends from an unrelated domestic corporation
Royalties is compensation for allowing someone else to use your property or idea
What additional percentage are PHCs subject to if income is not distributed
An additonal 20%
How much is the minimum accumulated earnings credit for corporations? personal service corporations?
Corporations - $250,000
Personal Service Corporations - $150,000
Accumulated Taxable Income = Taxable Income - Federal Income Taxes - Accumulated Earnings Credit
Accumulated earnings tax are imposed on which business structures?
Corporations not classified as PHC, unless PHC accumulates earning in excess of $250,000
Capital losses starting in 2021 and forward may be carried back _ years or forward _ years
Carried back 3 years
Carried forward 5 years
By what day of what month can a taxpayer deduct a charitable contribution?
15th day of the 4th month
True or False
Charitable contribitons are limited to taxable income before DRD
True
What taxpayers can use the cash basis method of accounting?
1.Tax Shelters, Certain Farming Corps, and Large C Corps with > $30M average annual gross receipts over 3-year period
2. Personal Service Corporations
Differences between Book vs. Tax
Permanent Differences include:
- Nondeductible expense
- Tax-exempt or nontaxable income
Differences between Book vs. Tax
Temporary Differences include:
- Depreciation
- Revenue
- Allowance for doubtful accounts or write off
- Warranty expenses
Differences between Book vs. Tax
What is the typical calculation to arrive at book income (i.e. TI to Book Income)
Taxable Income
(-) Nondeductible expenses
(+) Tax-exempt Income
( +/-) Temporary Differences
Remember taxable income includes state and federal taxes
Differences between Book vs. Tax
What is the typical calculation to arrive at taxable income (i.e. Book income to TI)
Book Income
(+) Nondeductible expenses
(-) Tax-exempt Income
(+/-) Temporary Differences
Net Operating Loss (NOL) carryback and forward rules if occured before 2017
Carryback 2 years
Carryforward 20 years
(offsets 100% through 2020 and 80% after 2020)
Net Operating Loss (NOL) carryback and forward rules if occured between 2018 - 2020
Carryback 5 years
Carryforward indefinitely
(offsets 100% through 2020 and 80% after 2020)
Net Operating Loss (NOL) carryback and forward rules if occured 2021 to present
No Carryback
Carryfoward indefinitely
(offsets 80% of future income)
What is the difference between NCLs and NOLs?
- NCLs arise from capital losses that can only offset capital gains and is subject to a 3 year carryback and 5 year carryforward rule
- NOLs arise from business or other ordinary losses and subject to certain carryback/carryforward rule (depending on year)
True or False
An owner’s basis in an S Corporation is increased by the owner’s share of profits, decreased by the owner’s share of losses, and is affected by any bank loans increased or decreased by the corporation
False, their basis is not affected by any bank loans increased or decreased by the corporation, unless they (owners) make direct loans to the corporation (which is considered their debt basis)
True or False
A shareholder in a S Corporation AGI includes taxable and nontaxable items
False, nontaxable items are reportable, but are not subject to tax
When are shareholders’ fringe benefits paid by an S Corp deductible?
- Non-shareholder employees
- Employee shareholders owning 2% or less of S corp
- If already included as part of gross income from the S Corp
True or False
An S corporation will terminate if it has passive investment income greater than 25% of gross receipts for 3 consecutive years
True
