R4. Tax Computation and Credits - Corp

Question 1

Taxation of C corporation

Answer 1

Deadline = April 15 ( year end Dec 31)

Extension - 6 months ( just for filling not for payments)

Small corporation : 
REquired to pay Lessor of: 
- 100% of the tax  for the current year OR 
-100% of the tax for the proceeding year
 ( otherwise interest and penalties) 

Large corporation = $1,000,000 or more income
-must pay 100% of the tax current year

Question 2

Corp Tax

Answer 2

Pay one of 2 taxes

1) regular tax ( 21% flat-rate)

2)
- accumulated earnings tax
OR
- Personal holding company tax

Question 3

Tax Credits ( C corp)

Answer 3

General business credit
- lots of business credits combined

Limitation
- 25% of net income tax above $25k

Unused Credit Carryover
- 1 back and 20 forward

E.g
Tax - $225k
Credits - $225k

Limitation 
$225k 
-$25k 
--------------
$200k 
*25%
------------------
$50k ( can't use this amount of credit - unused credits)

General business credit allowed
= $225k credit - 50k
= $175k allowed

Question 4

1) Research and development tax credit

2) Foreign Tax Credit

Answer 4

1) Research and development tax credit: 20% defined base amount

2) Foreign Tax Credit
- can annually choose to take foreign tax credit or deduction

• Lessor of
  1) qualified foreign income tax paid
  OR
  2) foreign tax credit limitation

-unused credit
back 1 and forward 10 years

e.g.
qualified foreign tax =2.5m
worldwide tax =20m
foreign income =5m

foreign credit limitation
us tax liability = 20m*21% = 4.2m
ratio = 5/20 = 25%
credit limit = 25% * 4.2m = 1,050,000

so, foreign tax credit = 1,050,000 ( coz lesser than 2.5m)

Question 5

Accumulated Earnings tax

Answer 5

• paid in addition to the regular tax
• improperly retained in the company instead of being distributed
• Regular C corp can keep till $250,000 of (lifetime) accumulated earnings
• Personal service - $150,000 ( lifetime)
• Flat 20% ( coz that’s tax rate individual pay as dividend income)
• IRS-assessed ( you don’t pay until IRS catches you)
• To avoid: demonstrate why you accumulated that money - for e.g buying another company, charity, capital loss, federal taxes paid, dividends paid

............................
Taxable income ( before dividend-recived deduction, no, charity deduction, capital loss carryover) 
(less: Valid excuses- see to avoid)
-------------------------------------
accumulated taxable income
(remaining credit - lifetime one) 
-----------------------------------------------
current accm. taxable inc. 
*20% 
------------------------------
accumulated earning tax

Question 6

Personal holding company

Answer 6

• paid in addition to the regular tax
• definition: more than 50% owned by 5 or fewer individuals
  AND
  60% of adjusted ordinary gross income consisting of:
  NIRD
  N- net rent
  I - Interest that is taxable
  R- Royalties ( but not a mineral, oil, gas, or copyright royalties)
  D- Dividends from unrelated domestic corp
• 20% on personal holding company net income not distributed