M - 1 - C Corporations Flashcards
How is the dividends received deduction calculated?
DRD percentages:
0 to 20% ownership -
What are temporary differences between book and tax?
These are the differences where GAAP rules differ from tax rules. So if you get a payment in advance, that would create a deferred liability in GAAP, but we would recognize those in tax. Think of early rental payments, any payments in advance, those are differences between book and tax.
What are permante differences between book and tax?
These are things that will not reverse, interest income from municipal and state bonds, life insurance proceeds when corp is beneficiary, etc.
For invidulas, Qualified personal service corporations, and taxpayers with annual gross receipts that do not exceed 30 million for the prior three year period (2024), do they use cash or accrual?
Cash basis
Tax shelters, farming corporations, C corporations, all have to use what type of accounting if their business has greater than 30 million in average gross receipts for the past three years?
Accrual
Can C corps deduct executive compensation? What is the limit?
They can deduct up to 1,000,000 to covered employees which include the five highest officers.
Can bonuses be taken as a deduction for c corps?
Yes, as long as they are paid within 2.5 months after year end.
What are the limitations on business interest expense? How long can you carryforward the disallowed interest?
If they business made more than 30 million in gross receipts in the prior three years, business interest income, 30% of adjusted taxable income, and floor plan financing.
You can carryforward it indefinitely.
For charitable contributions what is the limitation?
10% of AGI, disallowed amounts are carryforward 5 years, if accrual must be paid within 3.5 months after year end.
10% is calculated before charitable contribution deduction, drd, and any capital loss carryback.
What is the loss for property that is partially destroyed?
The decline in the FMV, or the adjusted basis before the casualty. Then take the lower minus insurance reimbursement.
What is the loss for property that is fully destroyed?
NBV minus any insurance adjustments.
How much can you deduct for business gifts? Business meal?
Up to $25 per gift. 50% deductible to corporation for meals.
If the corporation is the beneficiary of the life insurance policy is that deductible, can they deduct that?
NO, only if employee is beneficary.
Can you deduct sexual harassments cases?
Only if NDA was not signed.
The DRD is the lesser of which two numbers? What is the exception?
50% (65 or 100%) dividends received or;
50% (65% or 100%) of taxable income computed without regard to the DRD, any NOL carryforward, or any capital loss carryback.
The taxable income limitation does not apply if taking the full DRD results in a net operating loss. So if the greater of the two numbers would result in a NOL, then you would want to take that number.
Who is the DRD not available to?
Personal service corps
Personal holding companies
(personally taxed) S corporations
M-1 vs M-3?
M-1 presents a reconciliation of book income to tax income, and M-3 is used for large corporations with assets of 10 million or more.
How are NOL’s carry forward and carryback for C Corporations?
NOLs from 2017 and earlier: CB 2 years, CF 20 years, offset 100% of future income through 2020, 80% after
NOLs from 2018 to 2020: CB 5 years, CF forever, offset 100% of future income through 2020, 80% after
NOLs from 2021 and forward: no CB, CF forever, offset 80% of future income
For estimated payments, how do you know if a corporation is a small corporation? What do they have to pay for estimates?
When can you not use the prior year?
If they make less than 1 million in taxable income in the past three years. They are required to pay 100% of the tax shown in the return for the current year, or 100% of the tax shown in the preceding year.
The corporation owed not ax in the preceding year or they are a new corp and their last year was less than 12 months.
If you are a large corporation, how much do you have to pay for estimates?
If you make 1 million or more in taxable income for the past three years. You have to pay 100% of current year’s tax return.
What are the list of general business credits for C corps? The instructor said that you just need to know what they are what they do, no real calculations for these.
Investment credit
Work opportunity tax credit
Alternative fuels credit
Research and development credit
Low income housing credit
Small employer pension plan start up costs credit.
Don’t need to calculate just remember, what is the limitation on general business credits? What do you use the unused credits?
Credit may not exceed “net income tax” (regular tax less nonrefundable tax credits) less 25% of net regular tax liability above $25,000.
What is not used is carried back one year, and carried forward 20 years.
For foreign tax credits, are these a credit or deduction?
Either or, you can pick. Once you pick one, you cannot use the other, no mix and match.
How do you calculate foreign tax credit?
First, know your foreign tax amount (they give it to you)
Take your worldwide income times the us tax rate
Take your foreign income divided by your worldwide taxable income
Then multiply the two steps above to get your limitation.
Take the lessor of the first step and the fourth step.
What is not used can be carried back one year, and carried forward 10 years.
What is accumulated earnings tax?
IRS wants their money and they want it double taxed. If a corp has more than 250,000 in retained earnings, and they are not distributing it out, then they will have to pay an additional tax. Taxed at 20% rate.
To avoid this, need to provide reason for why. Maybe you are going to buy a new corp, or building a new building. Buy back stock. Number of shares does not matter, IRS determines if you need this tax.
What is personal holding company tax?
Corp’s pay 21% so sometimes companies create a holding company where they shelter that money and pay 21% tax rate. Additional 20% on tax if money is not distributed.
These are the ways a holding company is determined:
More than 50% owned by five or fewer individuals.
60% of adjusted ordinary gross income consisting of:
N - Net rent
I - Interest
R - Royalties
D - Dividends
Can prior year NOL’s and charitable contributions allowed in creating a current year NOL?
No
