M4 Tax Computations and Credits Flashcards
MCQ-06163
A C corporation had a federal income tax liability of $40,000 for each of the last five years, each covering a 12-month period. The tax for the current year is $48,000. What is the lowest amount that must have been paid as estimated taxes for the current year so that no penalty for underpayment is
applicable?
$40,000
The required annual estimated tax payment for a C corporation is the least of: 1) 100 percent of the tax liability of the prior year’s return, assuming a positive tax liability; 2) 100
percent of the current year tax liability; or 3) 100 percent of estimated current year tax liability according to the annualized income method. Because the corporation’s prior year tax liability is the least of these amounts, $40,000 is the minimum amount of estimated tax payments required to avoid an underpayment penalty.
MCQ-02085
Edge Corp., a calendar-year C corporation, had a net operating loss and zero tax liability for its Year 1 tax year. To avoid the penalty for underpayment of estimated taxes, Edge could compute its first quarter Year 2 estimated income tax payment using the:
- Annualized income method
- Preceding year method
Yes; No
Edge should use the annualized income method for calculating its estimated tax payments. Edge cannot use the preceding year method because it did not have an income tax liability in the preceding taxable year
MCQ-02119
Blink Corp., an accrual basis calendar year corporation, carried back a net operating loss for the tax year ended December 31, Year 1. Blink’s gross revenues have been under $500,000 since inception. Blink expects to have profits for the tax year ending December 31, Year 2. Which method(s) of estimated tax payment can Blink use for its quarterly payments during the Year 2 tax year to avoid underpayment of federal estimated taxes?
I. 100% of the preceding tax year method.
II. Annualized income method.
II only
Blink cannot use the 100% of preceding tax year method in Year 2 because it did not pay income tax in Year 1. Blink can use the annualized income method.
MCQ-02244
No penalty will be imposed on a corporation for underpayment of estimated tax for a particular year if:
The tax for that year is less than $500.
No underpayment of estimated tax penalty will be imposed if the total underpayment of tax for the year is less than $500
MCQ-02068
The accumulated earnings tax can be imposed:
Regardless of the number of stockholders in a corporation.
The imposition of the accumulated earnings tax does not depend on the number of shareholders a corporation has.
MCQ-02117
Which of the following credits is a combination of several tax credits to provide uniform rules for the current and carryback-carryover years?
General business credit
The general business credit combines several nonrefundable tax credits and provides rules for their absorption against the taxpayer’s liability.
MCQ-02156
Which of the following tax credits cannot be claimed by a corporation?
Earned income credit.
The earned income credit can only be claimed by individuals, not corporations.
MCQ-02066
A corporation may reduce its regular income tax by taking a tax credit for:
Foreign income taxes.
Under certain conditions a taxpayer may take a credit against its U.S. income tax for foreign income taxes paid.
MCQ-15836
A company reported net income of $400,000 on its Year 2 audited financial statements. The company reported $240,000 in tax expenses to arrive at its net income for financial statement purposes in Year 2, as detailed below:
Federal income tax paid to the IRS $150,000
State income tax paid to state Q 50,000
Foreign income tax paid to country M 20,000
Property tax paid to state Q 15,000
Sales tax paid to state Q 5,000
The company will not take the foreign tax credit. What is the company’s deduction for taxes paid on its Year 2 federal income tax return?
$90,000
The company can deduct all of the taxes shown except the federal income tax paid to the IRS. Since the company is not taking a credit for the foreign taxes paid, they can deduct
them instead. The total deduction allowed is the state income tax paid (50,000) + the foreign income tax paid (20,000) + property tax paid (15,000) + sales tax paid (5,000) = 90,000.
MCQ-02060
Dart Corp., a calendar year domestic C corporation, is not a personal holding company. For purposes of the accumulated earnings tax, Dart has accumulated taxable income for Year 1. Which step(s) can Dart take to eliminate or reduce any Year 1 accumulated earnings tax?
I. Demonstrate that the “reasonable needs” of its business require the retention of all or part of the Year 1 accumulated taxable income.
II. Pay dividends by April 15, Year 2.
Both I and II
Dart can take both actions to eliminate or reduce any Year 1 accumulated earnings tax. A corporation that can demonstrate that its reasonable business needs require it to accumulate earnings can escape the accumulated earnings tax on the portion reasonably accumulated. Dividends paid by the due date of the tax return reduce the accumulated earnings
subject to the accumulated earnings tax.
MCQ-04895
The accumulated earnings tax can be imposed:
On regular corporations not classified as personal holding companies.
The accumulated earnings tax can be imposed on regular corporations not classified as personal holding companies.
MCQ-02160
Kari Corp., a manufacturing company, was organized on January 2, Year 1. Its Year 1 federal taxable income was $400,000 and its federal income tax was $100,000. What is the maximum amount of accumulated taxable income that may be subject to the accumulated earnings tax for Year 1 if Kari
takes only the minimum accumulated earnings credit?
$50,000
For the accumulated earnings tax, in this case, accumulated taxable income would equal taxable income ($400,000) minus federal income taxes ($100,000) minus the minimum
accumulated earnings credit ($250,000) for manufacturing companies or $50,000.
MCQ-04108
The personal holding company income test requires the company’s income for a given taxable year to be at least:
60% of adjusted ordinary gross income.
There are two criteria in determining whether a company is a personal holding company: a) more than 50% of the stock must be owned by 5 or fewer individuals, and b) at least
60% of the adjusted ordinary gross income must consist of certain investment income (e.g., interest, dividends, etc.). So, the stock ownership test is 50% while the income test is 60%.
MCQ-02090
Edge Corp. met the stock ownership requirements of a personal holding company. What sources of income must Edge consider to determine if the income requirements for a personal holding company have been met?
I. Interest earned on tax-exempt obligations.
II. Dividends received from an unrelated domestic corporation
II only
I. Interest is normally included in personal holding company income, but only if it is included in the receiving corporation’s gross income. Since interest income from tax-exempt obligations is not included in gross income, it is not personal holding company income.
II. Dividend income from unrelated domestic corporations is personal holding company income.
MCQ-02207
Ati Corp. has two common stockholders. Ati derives all of its income from investments in stocks and securities, and it regularly distributes 51% of its taxable income as dividends to its stockholders. Ati is a:
Personal holding company.
Personal holding company status applies if a corporation is owned more than 50% by five or fewer individuals at any time during the last half of the tax year and if at least 60% of adjusted ordinary gross income for the tax year is personal holding company income (which would include income from
investments in stocks and securities).
