REG 4 - Tax Computations and Credits Flashcards
What is the filing date for 1120? What form is used for filing extension, and how long is extension granted?
- Filing date for 1120 - April 15th (year-end 12/31)
- Form 7004 is applicable extension form for six month extension
How many times a year is a corporation required to pay estimated taxes? What date must the taxes be paid?
Corporations are required to pay estimated taxes on the 15th day of the 4th, 6th, 9th, 12th months of their tax year.
What amount of estimated tax payments must a small corporation make?
1) 100% of current year tax due
OR
2) 100% of last year’s tax due
What amount of estimated tax payments must a large corporation make? Define large corporation?
A large corporation has taxable income of $1 million or more in any one of its three previous years.
- A large corporation MUST make estimated tax payments of 100% of tax due for current year
What are the three types of taxes that can be imposed on a corporation?
1) Regular tax
2) Accumulated earnings tax
OR
Personal holding company tax
3) Alternative minimum tax
What is the general business credit?
The general business credit consists of a combination of any of the following:
- Investment credit
- Work opportunity credit
- Alcohol fuels credit
- Research and development tax credit
- Low-income hosing credit
- Small employer pension plan start-up costs credit
- Alternate motor vehicle credit
- Other infrequent credits
Define the limit of general business credit? What is the formula for calculating amount of general business credit?
The general business credit may not exceed regular tax + alternative minimum tax - credits. (you can’t have more credits than your tax due).
The formula limits the credit by taking the GREATER of:
1) 25 percent of regular tax liability above 25,000
OR
2) Alternative minimum tax for the year
E.g. Tax is $225,000. AMT is $40,000. General business credit is $225,000.
Step 1) 225,000 - 25,000 = 200,000
Step 2) 200,000 x 25% = 50,000
Step 3) Take greater of 50,000 vs. 40,000 (alternative minimum tax for the year)
Step 4) The general business credit is reduced by $50,000
Define the carry back and carry forward for unused general business credit?
Unused business credits can be carried back one year and forward 20 years.
How is research and development tax credit calculated? How is the credit used?
- 20 percent of the increase in qualified research expenditures over a defined base amount.
- Small businesses are able to use the R&D tax credit to offset AMT.
Is the foreign tax credit a credit or a deduction for corporation?
A corporation can choose annually to take foreign tax credit as either a credit or a deduction.
How do you calculate foreign tax credit?
Step 1: Determine the qualifed income taxes paid
Step 2: Compute the foreign tax credit limitation
- Compute U.S. tax liability (worldwide income x U.S. tax rate)
- Compute ratio of foreign source income / total taxable income
- Multiple U.S. tax liability x ratio of foreign source income / total taxable income
Step 3: Determine the LESSER of qualified foreign taxes paid (step 1) or the foreign tax credit limitation (step 2)
E.g. Rowe Co., has $20 million of worldwide taxable income, and $5 million of foreign source income. Rowe Co. paid $2.5 million of qualified foreign taxes during the year.
Step 1: Qualified foregin taxes paid = $2.5 million
Step 2: Compute the foreign tax credit limitiation
- U.S. tax liability ($20 million x 35%) = $7 million
- Ratio of foreign source income / total taxable income ($5 million / $20 million) = 25%
= $7 million x 25% = $1.75 million
Step 3: Determine the lesser of step 1 or step 2 = $1.75 million
How many years do unused foreign tax credits get carried back and carried forward?
Unused foreign tax credits can be carried back ONE YEAR and carried forward for TEN YEARS
