R4-M2 Corporation Taxable Income Flashcards
what entities that are not eligible for DRD?
- Personal service corporations
- Personal holding companies
- personally taxed S corporations
what entities are eligible for 10% DRD?
- Affiliated corporations: 80% or more common ownership
- Small business investment corporation (SBICs): an SBIC makes equity and long term credit available to small business concerns
what is the exception to DRD taxable income limitation?
taxable income limitation rule does not apply if after taking full DRD still result in a net NOL. Ex: taxable income is 60. DRD is 65. after deduct DRD, result in a loss of 5. the taxable income now is 65 instead of 60
what are rules of uniform capitalization rules impact section 263A?
- taxpayers with average annual gross receipts of $29M or less (2023) during the 3 preceding years are NOT subject to uniform capitalization rules
- costs:
+ RM
+ DL
+ FOH
what are rules of capital loss deduction?
- Not allowed
- use to offset capital gains only
- carried back 3 years and forward 5 years
what are rules of taxes?
Deductible:
- Federal payroll taxes
- State income and payroll taxes
- City income and payroll and real estate taxes
Nondeductible:
- Federal income taxes
what are rules on certain expenses?
- Life insurance premiums:
+ key person: Not tax deductible
+ employ owns (fringe benefit): tax deductible - business gifts: $25 per person per year
- business meals: 50% tax deductible
- business entertainment: Not deductible
- Payment made related to sexual harassment or sexual abuse: Not tax deductible
- executive compensation: max is $1M
- Bonus accruals to employees: paid by 3/15
what are rules of certain intangible assets?
- organizational and start-up costs: deductible $5000 + excess over 180 months. Phase out if over $50k by reducing $5k
- included costs: fees paid for legal services, accounting fees, state of corporation fees
- Excluded costs: issuing and selling stock, commissions, underwriter’s fees, and costs incurred in transfer of assets to a corp
what is rule of charitable contribution?
- Deductible if accrued and paid by 4/15
- 10% adjusted taxable income limitation
- The excess may be carried forward for 5 years
- taxable income for purpose of charitable contribution limit is calculated before deduction of:
+ any charitable contribution deduction
+ DRD
+ capital loss carryback
+ NOL carryback - employee-designated qualified university contribution is also charitable contribution
what are rules of business losses or casualty loss?
- generally, any loss that is not compensated for by insurance is 100% deductible
- partially destroyed: loss is limited to the lesser of
+ decline in FMV or
+ NBV - both of the scenarios should minus any insurance proceeds
what are rules of dividends-received deduction?
- unrelated corporation (owns less than 20%): can deduct lesser of 50% of DRD or 50% of taxable income before DRD?
- corporation (owns 20% but LESS than 80%: can deduct the lesser of 65% of DRD or 65% of taxable income before RDR
- consolidated corporation (owns 80% to 100%): can deduct 100% of DRD
- the shareholder must own the investee stock for at least 46 days during the 91-day period beginning on the 45 days before the ex-dividend date of the stock to qualify for the DRD
what type of corporation is required using accrual basis method?
- accounting purchase and sales of INVENTORY (and inventory must be maintained) provided the business has GREATER than $29M of average annual gross receipts for the 3 preceding tax years. ex: manufacturers
- tax shelters
- certain farming corporations (other farming or tree-raising business may use cash basis) with average GR for the 3 preceding tax years > $29M
- C corporations, trusts with unrelated trade or business income, and partnerships having a C corporation as a partner provided average GR of the 3 preceding tax years > $29M
what type of entities can use cash basis?
- most individuals
- qualified personal service corporations (which related as individuals for purposes of these rules)
- taxpayers with average annual GR of the 3 preceding tax years DO NOT exceed $29M (2023)
what are rules about bad debts?
- corporations (accrual basis) are not small banks or thrift institutions are required to use the direct charge off method (direct write off) rather than the reserve method for tax purposes. GAAP uses allowance method
- cash basis: a bad debt is not deductible because a cash basis taxpayer has not included the amount in gross income. except in the case of uncollectible check that has been deposited and recorded as income
