REG - M3 - Entity Taxation Flashcards
Charitable Contribution limit for Corporations
10% of taxable income BEFORE the following deductions
*Charitable contributions
*Dividends received deduction (50-65%)
*Capital loss carrybacks
When are Life Insurance Premiums Deductible?
Deductible if insured employees name the beneficiaries because it is an employee benefit
NOT Deductible when policy is on key employee and owner and beneficiary is the corporation
Dividends Received Deduction - % levels
50% - own <20% of company, 50% are deducted from taxable income, up to a limit of 50% of taxable income
65% - own 20% to <80% of firm, 65% are deducted from taxable income, up to a limit of 65% of taxable income
100% - affiliated company with 80% or more ownership
Startup cost deduction
$5,000 for organizational and start up costs if cost is up to $50,000
Phase out dollar by dollar for costs over $50,000
Costs over initial $5,000 amortized over 15 years (180 months)
Amortization starts the month the business starts
Nondeductible Business/Trade Expenses
*Bad Debt - allowance method (direct write offs deductible)
*Business entertainment
*Business meals - 50%
*Political contributions
*Exec Comp in excess of $1m for CEO, CFO, 3 next highest
*Federal Income Taxes
*Penalties
*Estimated liabilities for contingencies (warranties)
Temporary book/tax differences
Book net income and Taxable income
Differences that equal out over time but recognized in diff periods
*Depreciation expense
*Gain/loss on sale of depreciable assets
*Bad debt expense
*Business interest expense
*Charitable contributions
*Unearned rent/loyalty income
Permanent book/tax differences
Income/Expense differences that will always be different
Either recognized in book but not in tax, or in tax but not in book
*Muni interest income (nontaxable)
*Life Insurance proceeds on key employees (nontaxable)
*Dividends-received deduction (tax only)
*Fines, penalties, political contributions (nondeductible)
*Entertainment expenses (nondeductible)
Accumulated Earnings Tax
Tax on accumulated earnings “beyond the reasonable needs of the business”
Corporations can accumulate up to $250,000 (or other reasonable amount) without penalty
Personal service corporations the amount is up to $150,000
Personal Holding Company
Must have BOTH of the following
1) >50% of the value of stock is owned by 5 or fewer individuals AT ANY POINT in the last half of the taxable year
2) at least 60% of adjust ordinary gross income is personal holding company income
PENALTY TAX is an additional 20% of the undistributed net personal holding company income
PHC Sources of Income
NIRD
Net Rent (if less than 50% of ord gross income)
Interest (taxable)
Royalties (NOT mineral, oil, gas, copyright royalties)
Dividends from unrelated domestic corporations
What are the 4 categories of public charities - 501(c)(3) tax exempt orgs
*Churches, schools, colleges, hospitals, qualified medical research
*Broad based publicly supported orgs with limited investment income and unrelated business income
*Not-for-profit orgs that support public charities
*Organizations that test products for public safety
Different type of 501(c)(3) tax exempt orgs
*Community chest or community fund
*Foundation organized for
*religious
*charitable
*scientific
*public safety testing
*literary
*educational purposes
*foundation for national/international amateur sports competitions
*foundation organized to prevent cruelty to children or animals
What is used to make an apportionment factor used to apportion income to a state?
the percentage of the corporation’s property, payroll, and sales in the state
Partnership basis calculation
Initial basis (includes equity AND share of liability)
+ Operating Gain
- Operating Loss
+ Dividend or Interest Income
+ increase in partnership liability
- decrease in partnership liability
Updated basis
Self Employment activity as part of household gross income calc
“draw” of salary it is not deductible
+self emp Income = gross income - expenses besides draw/salary
+additional household wages
+Interest household
+Cap Gains household
Total Gross Income for household
