R3-M3- C Corporation Tax Computations and Credits Flashcards
1 Taxation of a C Corporation: Part 1 2 Taxation of a C Corporation: Part 2 3 Taxation of a C Corporation: Part 3
General Business Credit
is a combination of several tax credits to provide uniform rules for the current and carryback-carryover years
combines several nonrefundable tax credits and provides rules for their absorption against the taxpayer’s liability.
- May not exceed
Net Income Tax= Regular Tax - Non refundable credits- (25%x (net regular tax liability over 25k))
-Carryback of 2 years and forward of 20 years
- Investment credit
- Work Opportunity credit
- Alternative Fuels Credit
- R& D Tax credit - 20% of the increase in expense on the current year
- Low income housing credit
- Small employer pension plan start up cost credit
- Other infrequent credits
Method s of determining minimum payments to avoid penalty of underpayment of estimated tax for a C Corporation
Preceding Year Method- CANNOT BE USED IF PY has no Tax Liability or PY was LESS than 12 months
Annualized Income Method for Current year
Underpayment of Estimated Tax for a C corporation vs. Inidviduals
C Corporation
No penalty if underpayment of tax for the year is LESS than $ 500
Individuals
No penalty if underpayment of tax for the year is LESS than $ 1,000
Lowest amount to be paid for Estimated Taxes for the Current year for a C Corporation othe r than Large corporations, see Answer
LARGE CORPORATIONS
MUST PAY 100% of the CURRENT YEAR liability
Taxable Income is $ 1M or more in any preceding 3 years
LEAST AMONG THE FF:
- 100 % of the tax liability of the prior year’s return, assuming a positive tax liability
- 100 % of the current year tax liability
- 100 %of estimated current year tax liability using Annualized Income Method.
Schedule M-1 important Line items
Add 4. Income subject to tax but not recorded on books
Add 5. Expenses recorded on booked this year not deducted on return
Deduct 7. Income recorded on books this year not included on this return (ITEMIZE)
Deduct 8. Deductions on this return not charged against book income
What is the form used to file income tax for a C Corporation?
6 MONTH EXTENSION can be filed through form 7004
7 month extension is available for Corp with fiscal years ending on June 30
Form 1120 US Corporation Income Tax Return
due 4/15 (for calendar year ending 12/31)
due 15th of the 3rd month after the close of fiscal period (before 1/1/2026)
due 15th of the 4TH month after the close of fiscal period (1/1/2026 onwards)
Estimated tax payments due date
4/15
6/15
9/15
12/15
Should be equally unless using Annualized income method
Accumulated Earnings Tax
Penalty Tax
IRS assessed as a result of Audit
Flat rate of 20%
Allowed AE (Lifetime credit)
- Regular corp- $ 250k
- Personal service corp- $ 150k
Not subject to AETax
- Personal Holding companies
- Tax exempt corporations
- Passive Foreign Investment corp
Ways to avoid
1. Definite plan for the use of accumulated earnings (reasonable needs)
- Redeem corporate stock held by deceased Stockholders estate
A dividend paid by due date of the tax return or “ Hypothetical consent” dividends may reduce or eliminate tax
Personal Holding Company Tax
- Way for high tax bracket individuals to pay lower tax of 21% instead of paying their higher individual income tax rates
- Not allowed DRD
DEFINED BY IRS as Both of below:
- Corporations OVER 50% owned by 5 or Less INDIVIDUALS (directly or indirectly)
ANYTIME during the LAST HALF of Tax Year - 60% of their Adjusted ordinary GI consisting of ANY of the following:
NIRD- mnemonics
Net rent (less than 50% of ordinary gross income)
Interest - taxable only
Royalties- not mineral oil gas or copyright royalties
Dividends from an unrelated domestic corporation
They are taxed an ADDITIONAL 20 % of PHC NET INCOME not distributed, thats why they don’t get charged for Accumulated earnings tax of 20%
- Schedule 1120PH (Self assessed tax)
- Taxable Income - Federal Income taxes- Net LTC Gain (net of tax)= Basis for undistributed PHC Income
For purposes of the personal holding company rules, a shareholder is considered to own stock held by family members, including
Brothers
Sisters
Ancestors- Father, Mother, Grand mother, Grand Father
Lineal descendants- Son, daughter
The ff NOT CONSIDERED family members
1st Cousin
Nephews
Aunt
In Laws
Former spoise
R&D Tax credit
Available for Qualified Small Business
- Businesses with LESS THAN 5M in Annual Gross Receipts and having Gross Receipts for 5 years and LESS only (up to 5 years) meaning a new company so not earning that much.
- Can offset this tax credit against FICA Employer portion of Payroll Tax
- Max tax credit capped at $ 250,000 per eligible year
20% of the increase in qualified research expenditures over a defined base amount
First computed separately then subject to General Business credit limitations first
Foreign Tax Credit
Accrued or paid
Corporations choose ANNUALLY whether to take credit or deduction for eligible foreign taxed
Generally, if a corporation elects the benefits of FTCredits, no deduction can be allowed for foreign tax for that year and cannot be used for subsequent year
Goal of this credit is to keep US TP Worldwide effective tax rate do not exceed the US Statutory tax rate
What is the formula for
Undistributed personal holding company income?
=Taxable Income - Federal Income Taxes- Net LT Capital Gain (net of Tax)
What is the formula to determine the undistributed income of PHC subject to 20% self assessed tax?
Undistributed personal holding company income - with formula above/ flashcard before this
LESS:
Paid dividends during the year
Consent dividends picked up by Inidvidual shareholders
The dividends paid deduction taken to arrive at personal holding company income includes the consent dividends for the taxable year as well as actual dividend distributions made.
A consent dividend is a hypothetical distribution made by agreement with the shareholders of the company whereby the shareholders pick up that amount in their personal income without an actual distribution being made. (IRS happy because they get the double taxation)
