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44 Cards in this Set

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What is the Corporate Tax Formula
Gross Income

- Deductions (other than DRD and charity)

= Taxable Income One

- Charitable Contributions (lim by 10% TI1)

= Taxable Income Two

- Div Rec Ded (may be limited)

= Taxable Income

x Rates

=Gross Tax Payable

-Credits / Prepayments

=Net Tax Payable / Refund Due
How are organizational costs amortized?
-must be incurred by the end of the first taxable year and must begin amoritzing immediately over 60 months, beginning with the month business commences
Are business meals & entertainment costs deductible? Exceptions?
50% of costs are deductible

Exceptions: traditional recreation expenses for employees (xmas parties and golf outings), amounts treated as recipient compensation, sold to customers, employer convenience
How are Casualty Losses on Business-use assets valued? What if totally destroyed or stolen?
Loss is valued at lower of FMV or adjusted basis, less any insurance proceeds

if its completely destroyed or stolen, loss is equal to adjusted basis - any insurance proceeds
How are R&D Expenditures treated?
On first return filed, Either:
1. Currently expense

2. Capitalize and amortize over 60 months or more if life is not determinable
- amt capitalized is reduced by 50% of credit taken
How are Net Operating Losses treated?
-Dividendsd Recieved Deduction allowed without limitation

-No deduction allowed for NOL carryback or carryover from other year's NOL

-can be carried back 2 years, forward 20

-may elect to forego carryback
What are charitable contributions limited to?
10% of Taxable Income One (without CL and NOL carryover)

If TI1 is negative, no deduction allowed

Excess can be carried forward 5 years
When can a charitable contribution be deducted in the CY even if not paid by close of the tax year?
- if election is made by BOD by year end

- amount is paid within 2 1/2 months of close of that tax year
When is the DRD computed?
After deducting charitable contributions but before any NOL carryovers and CL carryback
What is the general rule of how much to deduct for a DRD?
- Deduct 70% of dividends received from taxable, domestic contributions (goes to 80% if you own at least 20% of value or and voting stock in issuing corp)

- Deduct 100% from affiliated corporations
According to the Limit on General Rule, if dividends recvd are greater than TI Two, which is in turn greater than the full 80% (or 70%) what happens?
Deduction is limited to 80% (or 70%) of TI Two - will generate a smaller DRD
When does the mid-quarter convention apply?
if TP purchases >40% of a class in the last quarter of the tax year
what is Section 179?
Allows a TP to take a direct expense deduction for the purchase of depreciable tangible personal property

- $25,000, but limited to taxable income
When do you use depreciation recapture issues - Section 1231?
if you sell depreciable property at a gain, characterize some of the gain as ordinary income because of the ordinary deduction recvd for dep.

-real or personal property used in business that is sold at a gain held more than 1 year gets capital gain treatment under 1231
What is section 1245?
all depreciation taken on personal property, regardless of the method used is recaptured as ordinary income to the extent the property is sold at a gain
What is code section 1250?
generally there is no depreciation recapture on depreciable real property placed in service after 12/31/1986

-use of SL dep for real estate generally resulted in no recapture
What are the 2 methods of depletion?c
cost method and percentage method (can change each year)
What is the cost method of depletion?
-adjusted basis
-divided by the estimated number of recoverable units
-multiplied times the number of units sold
What is the Percentage method of depletion?
-statutory rate times the gross income from the property
-limited to a max of 50% of taxable income from the property
What is the Special Depreciation Allowance provided for in the JCWAA?
-provides additional 30% first year depreciation deduction for qualified property acquired and place in service after 9/10/2001

-no AMT adjustment for the entire recovery period
What are 4 types of qualified property that fall under JCWAA?
1. MACRS property with a recovery period of 20 years or less
2. Water utility property
3. Computer software (other than Sec. 197 prop)
4. Qualified leasehold improvement property
What are 4 types of qualified property that fall under JCWAA?
1. MACRS property with a recovery period of 20 years or less
2. Water utility property
3. Computer software (other than Sec. 197 prop)
4. Qualified leasehold improvement property
What is the educator expense deduction?
Eligible educators may deduct up to $250 in qualified expenses as an adjustment to income

-above the line deduction
What is a 1231 asset?
depreciable or real business asset held over 12 months
What are the 7 types of Reorganizations defined by Section 368?
A. Merger or Consolidation
B. Stock for Stock transfer
C. Stock for Asset
D. Transfer of Assets
E. Recapitalization (change in cap structure)
F. Change in identity, form or place of organization
G. Bankruptcy
In reorganizations, are liabilities considered boot?
NO
How do you determine the basis of stock recvd by shareholder?
Basis of stock given up
+ Gain recognized
- Boot received
= Basis of stock recvd by shareholder
What is the Schedule M-1 reconciliation?
Reconciles book to taxable income before NOL carryover and DRD
What does Schedule M-2 show?
analysis of changes in unappropriated retained earnings per books
What does Schedule M-2 show?
analysis of changes in unappropriated retained earnings per books
What does the AMT calculation start with?
Regular TI before NOL deduction
What is the capital gains deduction for corporations?
NONE. Corporations are taxed on all capital gains at the regular corporate tax rate
The minimum total voting power that a parent corporation must have in a subsidiary's stock in order to be eligible for the filing of a consolidated return is
80%
The rule limiting the allowability of passive activity losses and credits applies to
(1) noncorporate taxpayers, (2) closely held C corporations, and (3) personal service corporations. For S corporations and partnerships, passive income or loss flows through to the owners, and the passive activity loss rules are applied at the owner level. The passive activity loss rules apply to closely held C corporations--not to widely held C corporations.
Based on a corp's AMTI, what is the exempt portion of it?
The alternative minimum tax (AMT) applicable to corporations is 20% of alternative minimum taxable income (AMTI) that exceeds the exemption amount. The exemption amount for a corporation is $40,000 reduced by 25% of the amount that AMTI exceeds $150,000.
After a corporation's status as an S corporation is revoked or terminated, how many years is the corporation required to wait before making a new S election, in the absence of IRS consent to an earlier election?
5
Can an S Corp deduct compensation of officers?
Yes
What does Personal Holding income include?
mounts received by the corporation under a contract to furnish personal services to a third party where the third party can specify the individual who is to perform those services and where that individual owns 25% or more of the corporation
For the collapsible corporation provisions to be imposed, the holding period of the corporation's stock is?
Irrelevant
What are the 3 alternatives of handling R&D?
These expenditures may be expensed in the year paid or incurred, or they may be deferred and amortized. If neither of these two methods is elected, (R&D) must be capitalized. If the (R&D) is capitalized, a deduction may not be available until the research is abandoned or is deemed worthless.
A corporation's capital loss carryback or carryover is treated how?
as short term capital losses in the year to which they are carried
In a C corporation's computation of the maximum allowable deduction for contributions, what percentage limitation should be applied to the applicable base amount?
10% of taxable income computed without regard to the following: (1) deductions for charitable contributions, (2) deductions for dividends received, (3) net operating loss carryback and (4) capital loss carryback.
How are the costs of organizing a corporation handled?
Organizational costs are defined as expenses incurred incident to the creation of the corporation and chargeable to the capital account. Ordinarily, organizational expenditures may only be deducted when the corporation dissolves. However, a corporation may elect to deduct the costs of organizing the corporation ratably over a period of 60 months or more.
What expenses are included on Schedule M-1?
expenses incurred in connection with tax exempt income