Overview of Corporate Taxation

Question 1

Types of Corporations

Answer 1

(1) C Corporations

(2) S Corporations

Question 2

Taxation of C Corp

Answer 2

Corporation itself pays tax at flat rate of 21%

Distributions of corporate income as dividends are taxable again as income to the shareholders

DOUBLE TAXATION

Question 3

Taxation of S Corp

Answer 3

All items of income, gain, loss, deduction, and credit pass through from corp to the shareholders who include those items on their individual returns

Distributions of corporate income to the shareholders are generally not subject to tax

PASS-THROUGH TAXATION

Question 4

Differences in Taxation of C Corporations and Individuals: Deductions

Answer 4

All corporate deductions are ITEMIZED

No “above-the-line” deductions

Question 5

Differences in Taxation of C Corporations and Individuals: Capital Gains

Answer 5

No preferential rate for long-term capital gains

Question 6

Differences in Taxation of C Corporations and Individuals: Capital Losses

Answer 6

C Corporations can deduct capital losses to the extent of capital gains, but unlike individuals there is no additional $3,000 deduction when capital losses exceed capital gains.

Question 7

Differences in Taxation of C Corporations and Individuals: Accounting

Answer 7

Most C Corporations use the ACCRUAL METHOD

Question 8

Differences in Taxation of C Corporations and Individuals: Tax Year

Answer 8

Most C Corporations use the FISCAL YEAR

Question 9

Corporation’s Payment to a Creditor

Answer 9

Payment may to some extent be DEDUCTIBLE by the corp as interest and is ordinary income to the individual creditor

Question 10

Corporation’s Payment to a Shareholder

Answer 10

Payment is likely to be a NON-DEDUCTIBLE dividend and may be taxed at a preferential rate to the individual shareholder