R3 Entity Taxation Flashcards
DRD - Dividend Received Deduction
Ownership Less Than 20%
It can deduct 50% of the dividends received
DRD - Dividend Received Deduction
Ownership Between 20% and 80%
It can deduct 65% of the dividend received
DRD - Dividend Received Deduction
Ownership More than 80%
If can deduct 100% of the dividend received
Entities that must include in gross income 100% of dividends received from unrelated taxable domestic corporations
Both a personal service corporation and a personal holding company
must include 100% of the dividends received from unrelated taxable domestic corporations in gross income in computing regular taxable income
Under the LIFO method
Inventory on hand at the end of the year is treated as being composed of the earliest acquired goods.
Accrual-Basis Corporations
Required to determine bad debt expense based on the Allowance Method
BUT
For tax purposes Bad Debt deduction is based on the Direct Write - Off Method
A Charitable deduction for a Corporations
Is limited to the amount paid during the year or by the 15th day of the 4 month after the taxpayer year ends
Allowed deduction of 10% of their taxable income
Corporations are allowed to deduct reasonable compensation paid to shareholder-employees
If IRS determines that part of a shareholder’s salary is unreasonable, it may reclassify part of the salary as a dividend.
This decreases the corporations deductible salary expense and increases the corporations nondeductible dividends.
The reclassified portion of the shareholder’s salary is taxed to the shareholder as a dividend, which is taxed at preferential tax rates, rather than as salary, which is taxed at ordinary tax rates
PHC - PERSONAL HOLDING COMPANY
- More than 50% of stock must be owned by 5 or fewer ind
- 60% of ordinary gross income must come from Investment income like interest and dividends
PHC - PERSONAL HOLDING COMPANY
Deducts Federal Income tax
Deducts net long-term capital gains - federal income tax
Deducts Dividends paid
Foreign Income Taxes
Option of the Corporations to take
A deduction or a credit
Accumulated Earnings Tax
Is a penalty tax for C Corporations for not taking enough dividends distribution
Earnings excess of $250k and improperly retained
Tax Rate 20%
Personal Service Corporations are entitled to only $150k of (lifetime) accumulated earnings
Accumulated Earnings Tax
is NOT imposed on
Personal Holding Companies (PHC)
Tax-Exempt Corporations
Passive foreign investment corporations
C Corporations
Estimated Tax Payment
100% of Tax Liability of the prior’s year’s return
100% of CY tax liability
100% Estimated CY tax liability according to annualized income method
PHC is a Personal Holding Company if
Gross income consists of
Dividends
Taxable Interest
Royalties, but not mineral, oil, gas or copyright royalties
Net rent, if less than 50% of ordinary gross income
