Federal Taxation: Corporate Taxation Flashcards
What’s the difference between Schedule M-1 and Schedule M-3?
Schedules M-1 and M-3 are reconciliations between Book income and Taxable Income.
Schedule M-1 is for corporations with assets $10M
Book to Tax Income Reconciliation Formula
\+ Book Income \+ Non-Deductible expenses \+ Taxable income (not book income) - Non-Taxable income (included in book) - Deductions not expensed = Taxable Income
What is Net Operating Loss (NOL) Carry Back/Forward timelines?
NOL can be carried back 2 years and carried forward 20 years.
Formula for Corporation’s Basis in Property Received
+ Shareholder’s basis in the property
+ Gain recognized by the shareholder
= Corporation’s basis in the property received
Formula for Shareholder’s Basis for Stock Received from Corporation
+ Basis of all property transferred to the corporation
+ Gain recognized by shareholder
- Boot received by shareholder
- Liabilities assumed by corporation
= Shareholder’s basis in stock received from corporation
Holding period for corporation formation
- Shareholder (1231, other)
- Corporation
- Shareholder 1231 property: holding period tacks on
- Shareholder other property: does not tack on, begins day after transfer
- Corporation property: always includes holding period of property prior to transfer
Corporate Income Tax Formula
\+ Realized income - Nonrecognition of income (a. deferrals and exclusions, b. COGS) = Gross income - Deductions = Taxable income before special deductions - Special deductions = Taxable income x Tax rates = Gross tax \+ Other taxes = Net tax
How are net capital gains/losses handled?
Capital losses offset capital gains.
Net capital gains are reported as taxable income.
Net capital losses are carried back 3 year, carried forward 5 years.
5 Special Rules for Corporate Taxation
- Fiscal years can be used, except “S” Corps or “Personal Service” corps that must use calendar year
- Accrual accounting required except for small corps (<$5M), S corps, or personal service corps
- Multiple tax brackets not available for controlled groups or personal service corps (35% flat tax applies)
- Passive loss limits do not apply (except personal service corps, closely held corps)
- Tax date is 2.5 months (or 15th day of 3rd month) after fiscal year
How are organizational and start-up costs handled?
Syndication?
- $5,000 can be deducted
- $5,000 is reduced by by amount exceeding $50,000
- Capitalize and amortize over 180 mo (15 years) starting with 1st mo corporation begins operations
- Syndication costs (costs to issue stock) are capitalized, but not amortized.
Corporation Charitable Contribution Deduction
- Limit
- Carrying
- Inventory
- Limit 10% taxable income (before special deductions/carryovers)
- Excess can be carried forward 5 years; no carry back
- Inventory lower of: a) AB + 50% x (FMV-AB) or b) 2 x AB
Domestic Production Deduction
\+ Gross receipts of production activity - COGS - Direct costs - 40% Indirect costs - Direct W-2 wages = Qualified Production Activity Income (QPAI) Lower of a) QPAI or b) Taxable income x 9% =DPD (cannot exceed 50% of direct W-2 wages)
Corporate Tax Formula - Special Deductions
\+ Gross income - Deductions = Taxable income (for charitable deduction limitation) - Charitable deduction (10% limit) = Taxable income for DRD - DRD = Taxable income for DPD, carry backs - DPD, NOL carry back, STCL carry back =Taxable income
What period of time must a corporation hold a stock in order to take the dividend received deduction?
46 days
4 Corporate AMT Test Rules
- Corporations are exempt from AMT first year.
- Exempt from AMT if previous three years average annual gross receipts <$5M
- If corporate fails test any year, will be subject to AMT all future years
