Corporate Tax - Deductions

Question 1

Special Corporate Deduction 1

Charitable Contributions

Answer 1

Deduct the lower of:

• Adj Basis of property + 50% of the appreciation (i.e. FMV - AB), or
• 2 x adjusted basis

limited to 10% of taxable income

Excess carried forward 5 years

Question 2

Special Corporate Deduction 2

Dividends Received Deduction

Answer 2

If the company owns (domestic only):

< 20% –> 70% deduction

20% to 79% –> 80% deduction

>= 80% –> 100% deduction

Must hold the stock for at least 46 days to receive the deduction

3 step calc:

1. Full DRD (dividends rec’d x deduction %)
2. Taxable Income limitation ( Taxable Income x deduction % used in step 1)
3. Taxable income less Full DRD (step 1) –> does that create a loss?
   
   • If yes - taxable income limitation DOES NOT apply
   • If no - Use the lower of Full DRD or Taxable income limitation ( step 1 or 2)

Question 3

Special Corporate Deductions 3

Organizational Expenses

Answer 3

Legal, accounting, organizational meetings, fees paid to incorporate, etc

Rules for deducting:

• 5/50 Rule: deduct $5,000, reduced by expenditures that exceed $50,000
• Expenses not deducted can be amoritzed over 180 months
• Costs must be incurred by the end of the first taxable year
• Includes Start-Up Costs: costs that would otherwise be trade or business expenses that are incurred before your business is operational

Syndication Expenses: Costs of issuing and selling stock

• must be capitalized, but cannot be ammortized
• these are not organizational expenses

Question 4

Special Corporate Deduction 4

Domestic Production Deduction

Answer 4

• Production Activities within the US
• deduction = 9% x the lower of:
  
  • Qualified production activity income (net production income=gross inc less COGS, less direct/indirect costs), or
  • Taxable income
• Cannot exceed 50% of wages of production

Question 5

Corporate Tax Formula

**KNOW THIS**

(GDCDP)

Gross income

Deducts (w/o carrybacks)

Charity

Dividends (w/o NOL CF)

Production

Taxable Income

Answer 5

Gross Income

less: Deductions (except charitable, dividends rec’d, dometic production, NOL carryback, capital loss carryback)

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Taxable Income for Charitable Limitation

less: Charitable Contributions (<=10% of above)

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Taxable income for DRD (however, NOL farryforwards are not allowed for computing DRD limit)

less: DRD

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Taxable Income before Carrybacks

less: Domestic Production, NOL carryback, and STCL carryback

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TAXABLE INCOME

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