Corp / Entity Taxation Flashcards

(110 cards)

1
Q

Expense Deduction in lieu of Depreciation

Section 179 expense

A

Limit = $510k for new/used personal property

Phase out dollar for dollar after $2,030,000

Deduction not permitted when net loss exists or if deduction would create a net loss

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2
Q

Corp Tax

Executive Compensation Deduction

A

Max = $1M (fixed / base salary)

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3
Q

Form 709

A

Gift tax form

tax paid by person giving the gift

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4
Q

Tax Due on Current Gifts

Formula…

A
Gross gifts in a calendar year (@FMV)
- exclusion of $14k per donee per year
- unlimited marital deduction
- unlimited charitable gifts
= taxable gifts this year

+ taxable gifts of prior years
= cumulative lifetime gifts

x tax rate
- tax paid
- credits
= tax due on current gifts

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5
Q

Estate Expenses and Deductions

A

Medical expenses
Administrative expenses
above = expense or liability, but not both

Unlimited charitable deduction
Unlimited marital deduction
above = discretionary deductions

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6
Q

Estate Transfer Tax

Formula…

A
gross estate
- non discretionary deductions
= adjusted gross estate
- discretionary deductions
= taxable estate
\+ adjusted taxable gifts
= tentative tax base at death
x uniform tax rates
= tentative estate tax
- gift taxes payable
= gross estate tax
- applicable credit
= estate tax due
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7
Q

Form 706

A

Filed if gifts exceed 2017 limit ($5,490,000)

Due in 9 months after death

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8
Q

Property transfers to corporations

A

Non-taxable upon formation, if resulting in 80% ownership

Taxable if not 80%, or subsequent to formation

Treated like a sale of property to corp at FMV

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9
Q

Corp Tax

Shareholder Tax Consequences

A

No gain/loss if:
1 - 80% control
2 - no receipt/loot

  1. ..
    - no cash withdrawn
    - excess debt put into corp

NBV assets - liabilities = gain/loss

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10
Q

Amortization

A

GAAP not equal to Tax

Tax = 15 yr SL

GAAP =

  • public = impairment test / not amortized
  • private = option to amortize over 10 years
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11
Q

Form 1041

A

US income tax return for estates and trusts

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12
Q

Complex Trusts

A

May accumulate current income

May distribute principle

May deduct charitable contributions

Permitted a $100 exemption in arriving at taxable income

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13
Q

Grantor Trust

A

Individual who established the trust retains control

Income tax of the grantor

Can be qualified shareholder of an S Corp

Typically included in the taxable estate of the grantor upon his/her death

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14
Q

Simple Trusts

A

Only make disbursements out of current income

Required to distribute all of its income currently

Cannot take a deduction for charitable contributions

Entitled to a $300 exemption

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15
Q

Trusts and Estates

Annual Estate Income Tax
Form 1041

A

Required when income exceeds $600

  • exemptions for estates = $600
  • no standard deduction allowed

Tax year return due 15th day of 4th month

Estate exempted from making estimated tax payments for first two tax years

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16
Q

Trusts and Estates

Income Distribution Deduction

A

Lessor of:
1 - actual distribution to beneficiary
2 - DNI (less adjusted tax-exempt interest)

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17
Q

Distributable Net Income

(DNI) formula…

A

estate / trust gross income (includes cap gains)
- estate / trust deductions
= Adjusted Total Income

+ adjusted tax exempt interest
- capital gains (attributable to corpus)
= DNI

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18
Q

Nontaxable Liquidation of a Partnership

“complete withdrawal”

A

beg. capital account
+ % of income/loss up to withdrawal
= Partners capital account

+ % of liabilities
= Adjusted basis at date of withdrawal

  • cash withdrawn
    = Remaining basis to be allocated to assets withdrawn

Gain recognized exception = $ > basis
Loss recognized exception = $ < basis (no other items)

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19
Q

LLC Key Points

A

Protects from liabilities like a corporation

Unlimited members

Sole prop can be single member LLC

Can’t IPO

LLC members can make changes / manage but shareholders generally cannot

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20
Q

Taxable Income to Partners

A

Income = taxable = increases basis

Withdrawal = nontaxable = decreases basis

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21
Q

Partnership Terminates when…

A

Ops cease

50% of cap and profits is sold or exchanged

Less than 2 partners

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22
Q

Partnerships

Property Subject to an (excess) liability

A

If debt relieved (negative basis) exceeds basis once everything is factored in, it results in a 0 basis and taxable gain as boot/loot to the partner

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23
Q

Partnership Initial Basis Calculation

A
Cash contributed
\+ NBV property contributed
- Liabilities assumed by partnership
\+ Services rendered FMV (taxable as income to partner)
\+ Share of partnership liabilities
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24
Q

How to lose S Corp Status

A

Voluntary revocation

Failure to meet eligibility requirements
- corp or foreign owner

+ 25% gross receipts from passive investment income for 3 consecutive years and had C corp E/P at end of each year

can re-apply in 5 years

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25
S Corp Shareholder Loss Limitation Formula
Basis - Direct shareholder loans - Distributions = Loss Limitation
26
Computing Shareholder Basis in S Corp
initial basis + income items (separate, non-separate, tax free income) + additional shareholder investments in corp stock - distributions to shareholders - loss or expense items = ending basis
27
1120 Schedule E
Ordinary business income (including S Corp) Net rental real estate income/loss
28
S Corp Pass-through of income/losses to SH
K1 - on per share, per day basis Losses limited to basis Deduct up to = basis + direct loans Disallowed losses can be carried forward indefinitely Cost of fringe benefits over 2% not deductible - include in K1
29
S Corp Passive Investment Income taxed if...
S Corp has accumulated C Corp E/P Passive income exceeds 25% of gross receipts investment
30
S Corp Exemptions from Recognizing Gain
No tax on "built-in-gain" if: S Corp was never a C Corp Sale / xfer doesn't occur within 10 years of S Corp election Appreciation occurred after S election Distributed asset was acquired after S election Net unrealized gain (built-in) has been completely recognized in prior tax years
31
S Corp Eligible Shareholders
1 class of stock / 100 shareholders max Must be an individual, estate, or certain type of trust Can't be nonresident alien Qualified retirement plans, trusts, 501c3's okay No corporations or partnerships Grantor and voting trusts okay
32
S Corporations
Shareholders pay tax Avoids 2x taxation Form C corp and then apply for S corp election
33
Liquidation and Reorganization Rules Liquidation
Business activity completely ceases Corp consequence = taxable Shareholder consequence = taxable
34
Liquidation and Reorganization Rules Reorganization
Business activity continues Nontaxable to both corp and shareholders
35
Tax Free Reorganizations Type F
Change in form, identity, or place or organization
36
Tax Free Reorganizations Type E
Recapitalizations
37
Tax Free Reorganizations Type D
Dividing of the corp into separate operating corporations
38
Tax Free Reorganizations Type C
Acquisition by one corp of another corps assets, stock for assets
39
Tax Free Reorganizations Type B
Acquisition by one corp of another corps stock, stock for stock
40
Tax Free Reorganizations Type A
Mergers or consolidations
41
Corporation Paying Dividend Exceptions
Does not create a taxable event *exception: property dividends = taxable event* FMV property - NBV = corp gain
42
Stock Dividends
Generally not taxable Value is FMV at distribution date Basis = basis of old stock / (old + new shares)
43
Constructive Dividends
Excessive salaries paid to shareholder employees Excessive rents and royalties "Loans" to shareholders where there is no intent to repay Sale of assets below FMV
44
Dividends Defined
Current E/P (by year end) = taxable div Accumulated E/P (distribution date) = taxable div Return of capital (no E/P) = tax free, reduces basis Capital gains distribution (no E/P/no basis) = taxable income as capital gain
45
Capital Loss Carryover
Capital loss = only offset capital gains of corp "Short term" - carried back = 3 years - carried forward = 5 years Capital gains = no lower tax rate / taxed at ordinary rates
46
Net Operating Losses
1 - no charitable contribution deduction allowed 2 - no dividends received deduction 3 - no domestic production activities 4 - nothing counts from previous NOLs to current 5 - Can't deduct capital loss carry back against net cap gain Carry back = 2 years Carry forward = 20 years
47
Consolidated Taxable Income Calculation
1 - calculate stand-alone taxable income 2 - remove inter-company transactions (sales, adjustments, dividends) 3 - determine gains, losses, deductions at consolidated level 4 - taxable income combined 5 - taxable income adjusted for items from 3 above
48
Disadvantages of Filing Consolidated Return
Mandatory compliance with complicated regs Possible 2x counting of inventory Inter-company tx losses can be deferred Have to have same tax year Tax credits may be limited Binding for future years Some states don't allow
49
Advantages of Filing Consolidated Return
Offset capital losses Offset operating losses Dividends received 100% removed Tax deductions NOL carry-overs Some deferred inter-company sales
50
Affiliated Group Defined
Conslidated tax return when: - 80%+ voting power and 80% value of stock Consolidate: - GAAP = over 50% - Tax = 80-100%
51
Bonus Depreciation
New property only ``` 50% = 2015-2017 (placed in service) 40% = 2018 ("") 30% = 2019 ("") ``` Claimed after section 179 and before regular Example assets: - 1st < Section 179 > - 2nd < Bonus Depreciation > - 3rd < Regular >
52
Corporate Capital Gain / Loss
No lower / special tax rate Net Cap Loss = only to be used to offset cap gains - back 3 years - forward 5 years
53
Corp AMT Minimum Tax Credit (MTC)
Credit against future regular tax Carry forward of MTC (not back) *carry forward forever*
54
Corp AMT Foreign Tax Credit
Only credit allowed against Tentative Minimum Tax Can be carried back 1 year / forward 10
55
Corp AMT Tax Rate
Flat 20%
56
Corp AMT AMT Exemption Amount
$40,000 25% of AMTI over $150,000
57
Corp AMT | Alternative Tax Net Operating Loss Deduction ATNOLD
Generally limited to 90% of AMTI
58
Corp AMT Adjusted Current Earnings ("ACE") (MOLDD)
Municipal bond interest added back Organizational expense amortization added back Life insurance proceeds on key employees added back Difference between AMT and ACE depreciation Dividends received deduction ACE = 75% of difference between ACE and AMTI* ACE can be negative, but can't exceed bet positive ACE from prior periods
59
Corp AMT | Preferences PPP
*added back to income* Percentage depletion Private activity bonds Pre-1987 ACRS depreciation
60
Corp AMT +/- Adjustments (ALIE)
Adjustments for gain/loss Long-term contracts Installment sales-dealer Excess depreciation
61
Corporations Exempt from AMT
If gross receipts from previous 3 periods is: | - 7.5 million or less
62
C Corp Foreign Tax Credit
# Choose annually to take either a credit or a deduction Calculated: 1 - determine qualified foreign income tax paid 2 - compute foreign tax credit limitation 3 - determine lesser of the two above Unused foreign tax credits: - carry back = 1 year - carry forward = 10 years
63
C Corp Research and Development Tax Credit
20% of the increase in qualified research expenses over defined base amount Small businesses able to use R/O credit to offset AMT
64
Up to 3 taxes on C Corp
1 - Regular tax 2a - Accumulated earnings OR 2b - Personal holding company tax 3 - AMT
65
1120 Schedule M3
Net income / loss reconciliation for corporations with total assets of $10M or more
66
Dividend Received Deduction Does NOT apply to...
Personal service corporations Personal holding companies Personally taxes S Corps
67
Corp Tax Business Meals and Entertainment Deduction
50% deductible to corporation
68
Corp Tax Penalties and Illegal Activities
Not deductible
69
Corp Tax Taxes Deduction
State / City / Federal Payroll = deductible Federal income taxes = add back to book / GAAP income
70
Corp Tax Lobbying and Political Expenditures
Not tax deductible
71
Corp Tax Capital Losses Deduction
Not allowed Only to offset capital gains
72
Corp Tax Inventory Valuation Methods Deduction
Must be same method - GAAP / tax basis - Tax return Uniform Capitalization Rules Impact - raw materials - DL - factory overhead
73
Corp Tax Dividends Received Deduction
Reduces tax on corp receiving dividends 0 - 20% ownership = 70% deduction 20-80% ownership = 80% deduction 80%+ ownership = 100% deduction Consolidated return = 100% deduction
74
Corp Tax Business Gifts Deduction
$25 per year, per person
75
Corp Tax Life Insurance Premiums (expense) Deduction
Corp names as beneficiary - corp owns policy - NOT tax deductible Insured employee named as beneficiary - employee owns policy - tax deductible
76
Corp Tax Amortization, Depreciation, Depletion Deduction
``` Goodwill Covenants not to compete Franchises Trademarks Trade names ``` *amortize SL over 15 years*
77
Corp Tax Business Losses or Casualty Losses Relates to Business
100% deductible *less any insurance proceeds Partially destroyed - decline in value - adjusted basis before casualty - lesser of NBV or change in FMV Fully destroyed - NBV
78
Corp Tax Organizational Expenditures and Start Up Costs Deduction
Organizational expenditures = $5k / ... Start up costs = $5k / ... ... excess 15 years (180 months) Included: - legal services drafting charter - bylaws - minutes of org meetings - accounting services - fees paid to incorporation state Excluded: - issuing and selling stock - commissions - underwriters fees - costs incurred in the transfer of assets to corp
79
Corp Tax Charitable Contributions Deduction
Limit = 10% of adjusted taxable income Accrue and pay by April 15th
80
Corp Tax Business Interest Expense Deduction
On business = incurred and paid = deduction On investment = up to taxable investment income Prepaid = deduct "later" when incurred
81
Corp Tax Bad Debts: Specific Charge-Off Method
Accrual Basis = tax deductible when specific AR written off Cash Basis = No deduction (it was never income)
82
Corp Tax Bonus Accruals (non-shareholder / employee) Deduction
Pay by April 15th
83
Calculating QPAI
Domestic production gross receipts - COGS - other directly allocable expenses or losses - proper share of other deductions = qualified production activities income (QPAI)
84
Corp Tax Domestic Production Deduction
Deduction for US production - may not exceed 50% of W2 wages 9% deduction for lower of: - qualified production activities income (QPAI) - taxable income (disregarding QPAI deduction)
85
1120 Schedule M2
Analytics of unappropriated retained earnings per books
86
1120 Schedule M1
Reconciliation of income (loss) per books with income per return *show all differences (temp. / perm.)*
87
1120 Schedule L
Balance sheet per books
88
1120 Schedule K
Other information
89
1120 Schedule C
Dividends and special deductions
90
1120 Schedule J
Tax computation and payment
91
Form 1120
C Corp tax return
92
C Corp General Business Credit
Greater of: - 25% regular tax liability above $25,000 - "Tentative Minimum Tax" for the year Can be carried back 1 year / forward 20
93
Corp AMT Formula
Regular taxable income +/- Adjustment items to income (ALIE) + Preference items to increase income (PPP) = Unadjusted AMTI +/- Adjusted current earnings (MOLDD) - AMT NOL deduction = AMTI - AMT exemption ($40k - 25% of MTI over $150k) = AMT Base x 20% AMT rate = Gross AMT - AMT foreign tax credit = Tentative MT - Regular tax liability = AMT
94
Basis of common stock to shareholder
``` Cash = FMV Property = NBV - debt assumed by corp Services = FMV = taxable ```
95
Dividends Received Deduction Does NOT apply to...
S Corps Personal Service Companies Personal Holding Companies
96
Personal Service Company
Taxed at a flat 35% Law, accounting, engineering, consulting, etc..
97
Accumulated earnings tax
Corps with $250k+ acc. E/P Flat 20% penalty tax
98
Personal Holding Company
5 or less people own 50%+ 60% ordinary income comes from NIRD Add 20% tax on NI not distributed
99
Personal Holding Company NIRD
60% ordinary income comes from NIRD N - net rent >50% I - interest that's taxable (don't include nontaxable) R - royalties D - dividends from unrelated domestic corps
100
Distribution of appreciated property
FMV property - NBV = Corp. gain
101
Small Business Stock Exclusion
Non-corporate shareholder Holds small business stock 5 years + 100% gain on sale or exchange is excluded C Corp only Maximum exclusion limited to greater of: 1 - 10x basis in stock 2 - $10M / $5M MFS
102
S Corp status takes effect...
If before the 15th day of the 3rd month in the election year = 1st day of the tax year
103
Accumulated Adjustments Account (AAA)
Tracks the taxable / distributable income and expenses for the S Corp
104
Other Adjustments Account (OAA)
Contains records of all other / non-taxable income and expense items the S Corp tracks
105
Distributions from S Corp with NO C Corp E/P
1 - to extent of basis in stock no tax / reduces basis return of capital 2 - beyond basis in stock taxed as long term capital gain (if over 1 yr) capital gain distribution
106
Distributions from S Corp with C Corp E/P
1 - to extent of AAA no tax / reduces basis S corp profits 2 - to extend of corp E/P taxed as dividend, no reduction of basis old c corp taxable dividend 3 - to extent of basis in stock no tax / reduces basis return of capital 4 - beyond basis in stock taxed as long term capital gain (if over 1 yr) capital gain distribution
107
Partner Basis Formula (BASE)
Beginning capital account + % All income - % All losses (up to basis) - withdrawalS = Ending capital account + % liabilities (both recourse and non-recourse) = Year end basis
108
Partnership FY and return
FY = calendar (3 month deferral acceptable) Return = Form 1065 = due March 15
109
Partnership Capital Gain / Loss Calculation
Beginning capital account +/- % of income / loss up to sale = Capital account at sale date + % of liabilities = Adjusted basis - Amount received (cash, assumption of debt, FMV prop.) = Gain / Loss
110
Hot assets
Treated as ordinary gain to a partner, as if cash were taken unrealized receivables appreciated inventory "recapture income" regarding depreciable assets