Corporate Taxation Flashcards
(114 cards)
What is the main tax form for corporations’ tax liabilities?
Form 1120
What is the overall calculation for corporate income tax?
Income - deductions = taxable income x tax rate = tax liability - payments - credits = tax due (or overpaid)
This is the outline of Form 1120
When must a corporation file Form 1120?
By the 15th day of the third month after the corporation’s tax year – which is usually March 15
What is the purpose of Form 7004?
It extends the filing deadline for Form 1120 by six months – though it does not extend the deadline for paying taxes
What is peculiar about federal corporate income tax rates?
They do not consistently increase with income, but decrease at various points
What are the 2013 federal income tax rates for corporations?
Under $15k -- 15% $50k - $75k -- 25% $75k - $100k -- 34% $100k - $335k -- 39% $335k - $10mil -- 34% $10mil - $15mil -- 35% $15mil - $18,333,333 -- 38% Over $18,333,333 -- 35%
Why do corporate income tax rates increase and then decrease?
Various brackets have a higher % in order to phase out the benefits from the lower bracket, making it as if the entire income up to that point were at a fixed rate
E.g. for 2013, after a corporation pays 39% tax on up to $335k in income, it will have an effective tax rate through that $335k of 34% – the total taxes divided by the income will be 34%
Do any corporations pay different income tax rates?
Yes, some personal service organizations are required to pay a flat 35% tax rate
Which concepts of individual income taxation do not apply to corporate taxation?
AGI, standard or itemized deductions, and personal exemptions
What is a dilemma provided by organizational and startup costs for a corporation?
Business expenses can normally be deducted, but those only apply to expenses for an already-running business, whereas startup expenses by definition do not apply to that
How can organizational and startup costs be deducted?
As of 2013, the total amount is capitalized and can be deducted as it is amortized over 180 months, but $5,000 can be deducted in the first year
This $5,000 is phased out as the startup costs range from $50,000 to $55,000, however
-see if this is correct for 2013 still
Which costs are included in and excluded from organizational costs?
Costs for (1) organizational meetings, (2) incorporation fees, (3) temporary directors, and (4) accounting or legal expenses related to organization are included
Costs for issuing stock are not
What are startup costs?
Any costs for creating an active trade or business, incurred before the actual business begins
Examples:
(1) market or product analysis costs (though not research or experimental costs)
(2) ads for executives or other positions
(3) pay for employees in training
(4) costs to attain prospective distributors, suppliers, or customers
What is the dividends received deduction (DRD)?
If a corporation is a shareholder in another corporation, the ordinary double taxation of corporate income paid out to shareholders can become triple (or quadruple, etc.) taxation
To reduce this, there is a deduction available for corporations who own stock in another corporation
How much of a deduction does the dividends received deduction (DRD) provide?
Depends on the corporate stockholder’s percentage of ownership
80% ownership: 100% deduction
20-80% ownership: 80% deduction
<20% ownership: 70% deduction
What is the taxable income limitation on the dividends received deduction (DRD)?
If the full DRD does not cause or further a net operating loss, then the DRD cannot be greater than the same % of taxable income
This can occur if the DRD is 70% or 80%, but not if it is 100%
What is an example of a taxable income limitation on the DRD?
A corporation has $100k of dividend income from a 50%-controlled corporation but a final taxable income of only $85k. The full DRD would be 80% of $100k ($80k), but the DRD is in this case restricted to 80% of taxable income = $85k x 80% = $68k
Other than when the DRD is 100%, when does the taxable income limitation not apply?
If the full DRD, when subtracted from taxable income would cause a NOL (or further extend one)
What is an example where the taxable income limitation on the DRD does not apply?
A corporation has $100k of dividend income from a 50%-controlled corporation but a final taxable income of only $70k. If the full DRD ($80k) is deducted from taxable income, the result would be a NOL of -$10k. In this case, the corporation need not limit the deduction to 80% of taxable income, but can deduct the full $80k.
How is a DRD deduction calculated if a corporation has both 70%-deductible dividends and 80%-deductible dividends?
The same general rules apply regarding the taxable income limitation and NOLs, but the relevant numbers are calculated by first deducting the 80% deduction and then the 70% deduction
Under what circumstances does the dividends received deduction not apply?
If the stock is held for a short period of time
For most stock, it must be held for 45 days within a 90-day period that starts 45 days before the dividend date
For preferred stock, it must be held for 90 days within a 180-day period that starts 90 days before the dividend date
Can a corporation deduct life insurance premiums for officers?
No, no such premiums for any important people in the corporation are deductible – and neither are proceeds from such policies taxable as income
Can a corporation deduct charitable contributions?
Yes, but only to 10% of its taxable income
This taxable income is calculated without already incorporating (1) the DRD, (2) any NOL carrryback, (3) any capital loss carryback, or (4) the charitable contribution deduction itself
What happens to charitable contributions in excess of 10% of taxable income?
They can still be deducted, as they can be carried forward for five years
