R4 Flashcards
Beta, a C corporation, reported the following items of income and expenses for the year:
Gross income $600,000
Dividend income from a 30% owned domestic corporation 100,000
Operating expenses 400,000
What is Beta’s taxable income for the year?
DRD percentage for 30% owned stock is 65%.
Corporate taxable income is calculated:
Gross income $600,000
Dividend income 100,000 *
Operating expenses (400,000)
DRD (65,000) [65%xDRD]
Taxable income $235,000
Jagdon Corp.’s book income was $150,000 for the current year, including interest income from municipal bonds of $5,000 and excess capital losses over capital gains of $10,000. Federal income tax expense of $50,000 was also included in Jagdon’s books. What amount represents Jagdon’s taxable income for the current year?
Book income $150,000
Fed income tax expense 50,000
Less: municipal bonds (5,000) - not taxable
Add: excess losses over capital gains 10,000 - not a taxable deduction in current year
Net taxable income $205,000
Regarding consolidated taxable income, how are net section 1231 losses and capital losses treated?
Consolidated taxable income includes income from operations from all corporations within the affiliated group. Net section 1231 losses are deducted as ordinary losses, and capital losses of one member of the affiliated group, offset the capital gains of another member of the affiliated group. 
Kisco’s corps taxable income before taking the dividends-received deduction was $70,000. This includes $10,000 in dividends from an unrelated taxable domestic corporation. Given a 21%, tax rate what would Kisco’s income tax be before any credits?
The $10,000 dividend is from an unrelated corporation. This means less than 20% of the company is owned. 50% dividends-received deduction is available.
Taxable income $70,000
Less: dividends-received deduction, (50% x 10,000) (5000)
Taxable income $65,000
Income tax
21% x $65,000 = $13,650
What is the charitable contribution deduction limited to for a corporation?
The charitable contribution deduction is limited to 10% of taxable income before the dividends-received deduction and the charitable contribution deduction.
Describe the special rule section 1244 for small business stock.
When a corporation stock is sold or becomes worthless an original stockholder can be treated as having an ordinary loss, i.e. fully deductible instead of a capital loss up to 50,000 or (100,000 if married filing jointly) for the year. Any loss in excess of this amount is a capital loss.
Can C corporations with greater than $29 million average annual gross receipts use the cash basis of accounting?
No. C corporations must use the accrual basis of accounting for tax purposes. When a corporation changes to a C corporation status, therefore, it must report on the accrual basis of accounting for tax purposes. It will be able to stay on the same year end basis before the change.
How would the taxable income of both a C corporation and a shareholder change if land were distributed instead of cash?
The general rule is the payment of a dividend does not create a taxable event, unless the distribution is appreciated property. When the distribution is of appreciated property, the corporation recognizes gain as if the property were sold at fair market value. However, land is not appreciated, therefore, the C corporation’s taxable income would increase if the land were distributed, but the shareholders, taxable income would not change.
Is municipal bond interest income included in taxable income?
No. To arrive at taxable income, municipal bond interest income is subtracted from book income because it is not included in taxable income.
What items when received in advance of accrual income is taxed?
Interest income received in advance.
Rental income received in advance.
Royalty income received in advance.
What income items are not included in taxable income?
Interest income from an Insta pot or state, obligations or bonds.
Certain proceeds from life insurance on the life of a corporate officer when the corporation is the beneficiary.
Is the capital loss deduction, allowed for corporations?
No. The $3000 deduction for net capital losses is only available to individuals. However, excess capital losses may be carried back three years or carried forward five years. A corporation can only use capital losses to offset capital gains.
What is the dividends received deduction percentage when the ownership percentage is 0% to less than 20%?
50%
What is the dividends received deduction percentage when the percentage ownership is 20% to less than 80%?
65%
What is the dividends received deduction percentage when the ownership percentage is 80% or more?
100%
