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 - Includes Consent Dividends
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
NOL Rule before 2018
(2017 and earlier)
Carried-back 2 years &
Carried forward 20 years
Carry-Forwards can offset 100% of future taxable income
NOL Rule for 2018, 2019, 2020
Carried-back 5 years
Carried forward forever
Offset TI:
100% of TI for 2018, 2019 & 2020
80% of TI for 2021 & Future years after deducting pre - 2018 NOL Carryforwards
NOL Rule for 2021
NOLs cannot be carried back
Never get a refund
Carry forward forever
Only offset 80% of TI for 2021 and future once 2018 carry forwards first
Separately Stated Items
Real estate income or loss
Interest Income
Dividend Income
Royalties
Net Short-term Capital Gain or loss
Net Long-term Capital Gain or loss
net Section 1231 gain or loss
Charitable Contributions
Sec 179 expense deduction
Basis for Partnership
Beginning Basis - Contributions
Addition % of All Income (Ordinary business Income, Separately stated income and gains, Tax-exempt income
- ( Subtract ) All losses and deductions ( Ordinary business loss, Separately stated losses and deductions, Nondeductible expenses
- (Subtract) Distributions
Ending Capital Account
+ % of Partnership Liabilities
Ending Tax Basis in
Partnership Interest
DRD modified taxable income is calculated as
Taxable income before the dividends-received deduction
+Any NOL deduction,
AND
Capital loss carryback deduction.
A distributive share of partnership income
is partnership income taxable
Shareholder’s Stock in an S Corporation
is increased by any item of income and decreased by any item of loss or deduction that passes through to the shareholder
FRINGE BENEFITS
such as Health Insurance
Is included in Shareholders of S Corp IF they own more than 2% of the S Corporations Stock
Owner’s Basis in a S Corp
Is increased by owner’s share of profits
AND
Decreased by the corporation
S Corp shareholder only has debt basis in direct loans made to the Corporation by the owner
for DRD Dividend Reduction Deduction
When a loss exists, the income limitations does not apply and the full DRD is allowed
So calculate it according to % of ownership and take the full DRD
C Corporation
Taxable income includes operation income
Can be reduced by Charitable Contributions but only 10% of income
Carry forward whats left 5 years
Any capital loss can be carried back 3 years or forward 5 years to hit capital gains ONLY
NO TAX PENALTY WILL BE IMPOSED IF
(Corporations)
Total underpayment of tax for the year is less than $500
(Corporations)
Partnership Income
A partner must include their share of partnership income (even if not received) on tax return
Withdrawals/Distributions are not a taxable event, yet will decrease the partners basis
CANNOT USE 100% OF PRECEDING TAX YEAR METHOD
If Corp did not have to pay income tax
FOR S-CORP
Both taxable and tax-exempt and separately and non-separately stated items (stated on the Schedule K-1) of income or loss affect a shareholder’s basis.
Shareholder’s basis of stock in an S corporation is
Increased by:
additional contributions
income or gain items (taxable and tax-exempt)
Decreased by:
distributions to shareholders
nondeductible expenses
loss or deduction items
S-Corp owner taxable income
Is the % of interest of the individual X Operating Income
C - Corporation
Paying estimated taxes so that no penalty for underpayment
- 100% of the tax liability of the prior year’s return
- 100% of CY tax liability
- 100% of estimated CY tax liability according to the annualized income method
Accumulated Earnings Tax
to determine Accumulated Taxable Income
Taxable Income - Federal Income Tax - Min Accumulated Earnings Credit ($250k for manufacturing companies) = Accumulated Taxable Income
Apportionment Tax
Calculation of Apportionment Tax
Property and Rent Expense in State / Total Property
+
Payroll in State / Total Payroll
+
Sales in State / Total Sales
/
3 (Property and Rent Exp, Payroll and Sales)
Investment Income from a Political Organization
Is completely taxable and NOT exempt
Amount of Partnership income taxable
The Share of Partnership Income
