R3 - C Corp Flashcards
What’s corp’s basis in property received?
Greater of:
- Adj Basis (NBV) + gain recognized by shareholder, or
- Debt assumed by the corp
What’s shareholder’s basis in common stock?
- Cash = amount contributed
- Property = NBV
- Adj Basis is reduced by debt on the property assumed by the corp
- Gain recognized by shareholder (when debt exceeds asset’s NBV) is added to stock basis.
- Services = FMV
Corp book inc vs tax inc: what are you temporary difference?
Temporary differences:
- Cash received in advance
- Retnal income received in advance
- Royalty income received in advance
Corp book inc vs tax inc: what are your permanent diffs?
- Interest income from municiapl or state obligations/bonds
- Life insurance on life of an officer
- Federal income taxes are NOT deductible on tax retursn
What is QPAI and how do you calculate it?
Qualified production activities income.
Domestic production gross receipts
< Cost of goods sold >
< Other directly allocable expenses or losses >
< Proper share of other deductions >
= QPAI
How do you calc domestic production deduction?
Limited to 50% of W2 wages paid by corp for the year.
Deduction is 9% of the lesser of:
- QPAI
- Taxable income disregarding QPAI deduction
How much is the executive compensation deduction?
Deduct up to $1M or four most highly compensated officers.
Can a corp deduct bonus accruals?
Yes, bonuses paid by an accrual basis taxpayer are deductible in the tax year when all events have occurred and if they are paid within 2.5 months after y/e
Can a corp deduct bad debts?
Yes and no.
Accrual basis taxpayers = yes but they must use specific charge-off method for taxes. Note the allowance method is GAAP but is not allowed under tax.
Cash basis taxpayers = no, they cannot deduct bad debts.
Can a corp deduct business interest expense?
Int exp on business = deduct amt incurred and paid
Int exp on investments = up to taxable investment income
Prepaid int exp = deduct later when incurred.
Note: int on tax-free bonds is not deductible
Can a corp deduct charitable contributions?
Yes, but only up to 10% of taxable income. Any disallowed amounts are carried forward FIVE YEARS.
Business loss / casualty loss deduction:
- Partially destroyed
- Fully destroyed
- Partially destroyed: lesser of
- Decline in value of property, or
- Adj Basis (NBV) immediately before the loss
- Fully destroyed: NBV
How much can a corp deduct for organizational and business start-up costs?
$5,000 for org costs
$5,000 for business start-up costs.
Any excess is amortized over 180 months.
Allowable costs: legal fees to draft corp charter, bylaws, minuts, accounting services, fees to state of incorp
Dissallowed costs: issuing and selling stock, commissions, underwriter’s fees, transfer of assets to corp. Basically anything related to cost of raising capital.
Can a corp deduct intangible asset amortization?
Yes. Goodwill, covenants not to compete, franchises, trademarks, and trade names can be amortized S/L over 15 years beginning in month acquired.
Can a corp deduct life insurance premiums?
Yes and no.
Premiums paid by corp for life insurance policies on key employees are NOT deductible when the corp is the beneficiary.
How much can a corp deduct for business gifts?
Maximum $25.00 per recipient per year.
How much can a corp deduct for business meals and entertainment?
50% tax deductible
Can a corp deduct taxes?
Yes and no.
Allowed to deduct the following taxes:
- State income
- City income
- Federal payroll tax
Federal income taxes are NOT deductible
Foreign income taxes may be used as a credit
Is there a capital loss deduction for corporations like there is for individuals?
No. There’s no capital loss deduction for corporations.
What’s the capital loss carryover period for corporations?
Net capital losses for corporations are carried back 3 years and forward 5 years.
Corporation can only use capital losses to offset capital gains.
How are net operation losses (NOL) treated for corporations?
Carryback 2 yrs and carryforward NOLs 20 years.
How do you calc the General Business Credit for corp?
Credit may not exceed net income tax (which is regular tax plus alternative minimum tax less nonrefundable tax credits) less the greater of:
- 25% of regular tax liability above $25,000 or
- Tentative miniimum tax for the year
How do you treat unused General Business Credits for a corp?
Unused cretis may be carreid back 1 year and carried forward 20 years.
What are the % rates for Dividends Received Deduction?
0-19% ownership = 70% DRD
20-79% ownership = 80% DRD
80-100% ownership = 100% DRD
Note, if the question says it is an “unrelated investment” then this is a small investment (less than 20%) and you would use 70% DRD.
How do you calc the amount of the Dividends Received Deduction?
DRD is equal to the lesser of:
- DRD % x dividends you received, or
- DRD % x taxable income before the DRD, NOL, capital loss carryback, and domestic production activity deduction
But if taking one would create a loss, then you must use the smaller one of the above.
What types of entities may NOT apply DRD?
- Personal service corporations
- personal holding companies
- S corps
How many months does a Corp get when they ask for a filing extension?
Six months
Business losses or casualty losses
Partially destroyed property: limited to the lesser of decline in value or the NBV just before the destruction
Fully destroyed property: NBV
Note: these rules are different for individuals where you get a $100 reduction and there’s a 10% of AGI limit for individuals
What are the statue of limitations for corp tax filings?
- 3 years or if there’s a 25% misstatement then it’s 6 years
This is measured from the later of:
- due date of the return or
- date return is filed (includes amended returns)
How do you calculate the estimated payments due for a corp?
All corporations must pay 25% of the estimated tax due with each payment. You determine the estimated tax due as follows:
Small corp: lesser of:
- 100% tax owed for current year or
- 100% tax owed for prior year
Larg corp: $1M or more in taxable income in any of 3 preceeding years
- 100% tax owed for current year (only one option)
When do you consolidate for tax?
Must be an affiliate group. Brother/sister corps are not allowed to consolidate
Consolidate when a corporation owns 80% or more of another corporation’s stock (note GAAP consolidates when 50% owned).
What’s the treatment of Section 1244 stock: ordinary loss or capital loss?
When corp’s stock is sold or becomes worthless, an original shareholder can be treated as having an ordinary loss (fully tax deductible) instead of a capital loss up to $50k (100k if MFJ). Any excess over this $50k is treated as a capital loss, which would offset capital gains and then a maximum $3,000 MFJ or $1,500 MFS per year would be deductible
What happens if you transfer property and you DO NOT own 80% in the company after the transfer?
This is a taxable transaction.
If you transfer property and you don’t meet the 80% control test then it is a taxable event AND the corporation’s basis in the property is based on FMV instead of your basis.
