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62 Cards in this Set
- Front
- Back
C Corporation Formation---Corporation
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No gain/loss recognized
Basis = greater of shareholder basis (NBV) in property or debt assumed |
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C Corporation Formation---Shareholder
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No gain/loss recognized if property is exchanged for 80% control or if NO boot involved
Adjusted basis in stock = NBV property transferred + gain recognized by shareholder |
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Schedule M-1
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book income reconciled to taxable income
Permanent & Temporary Differences |
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Form 1120
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US C-Corps
Schedule C---Dividends Schedule J--- Tax Comp & Payments Schedule L---Balance Sheet per books M-1 book income reconciliation to taxable income |
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Temporary Differences
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Interest Income received in advance
Rental Income received in advance Royalty Income received in advance Depreciation Organizational Costs |
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Permanent Differences
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Interest income from state/municipal bonds
Certain proceeds from life insurance on life of an officer Federal Income Taxes 50% Meals & Entertainment Expense |
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Domestic Production Deduction
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9% of lesser of Qualified Production Activities Income (QPAI) or Taxable Income
Must be ordinary & necessary expenditures |
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QPAI
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Qualified Production Activities Income- domestic production gross receipts - COGs - other applicable overhead costs
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Executive Compensation Deduction
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up to $1,000,000 for CEO or other 4 highest paid officers
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Bonuses
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Accrual basis taxpayer--paid by 2.5 months after year-end to be deductible
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Bad Debts
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Specific Charge-Off Method- permitted if debt has become worthless for accrual basis taxpayers only
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Business Interest Expense
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General Business Interest- deductible--incurred & paid
Investment Interest Expense- limited to net taxable interest income Prepaid Interest Expense- Deduct when incurred & paid |
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Charitable Contributions
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10% of adjusted taxable income
Taxable income before DRD, NOL carryback, Capital loss carryback, and US production activities deduction |
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Business & Casualty Losses
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100% deductible after insurance reimbursement
Partially destroyed--loss limited to lesser of decline in value or adjusted basis immediately before casualty |
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Organizational & Start-up Costs
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$5,000 expensed immediately; amortize excess over 180 months
DOES NOT INCLUDE: issuing/selling stock, commissions, underwriter fees, costs of raising capital GAAP Difference- expense immediately |
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Goodwill/Intangibles
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Amortize over 15 years/ 180 months
GAAP- not amortized, tested for impairments |
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Life Insurance
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Premiums on key employees when corporation is beneficiary = NOT deductible
Fringe benefit for employees = deductible |
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Meals and Entertainment
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50% deductible
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Business Gifts
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$25/person/year
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Penalties & Fines
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NOT deductible
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Taxes
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State income, city income, federal payroll = deductible
federal income taxes NOT deductible Foreign income taxes may be used as a credit |
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Political & Lobbying Expenses
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Generally NOT deductible except direct-type lobbying of local government
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Capital Gains & Losses
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Capital gains tax rates for corporation are same as ordinary rates
Net capital losses- 3 year carryback, 5 years forward Only offset capital gains |
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Net Operating Losses
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2 year carryback; 20 years forward
Does not include charitable contributions, but does include DRD |
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General Business Credit
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may not exceed net income tax less greater of 25% of regular liability above $25,000 or tentative minimum tax for year
Carryback 1; forward 20 years |
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Dividends Received Deduction (DRD)
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0-20% ownership: 70%
20-<80% ownership: 80% >80% ownership: 100% of dividends received OR 70/80% taxable income unless full DRD will create NOL NOT for personal service, personal holding, & SCorp |
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Estimated Tax Payments- Small Corporations
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based on 100% current year tax or 100% preceding year tax
Can't be used if preceding year tax was $0 >$1,000,000 in any of 3 preceding years |
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Estimated Tax Payments- Large Corporations
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ONLY 100% current year tax
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Consolidated Returns
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Affiliated group where common parent directly owns 80% or more of voting power & value of outstanding stock of corps may elect to be taxed as single unit
Eliminates intercompany gains & losses GAAP > 50% |
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Corporate Alternative Minimum Tax
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Taxable Income +/- Adjustments + Preferences +/- ACE - AMT NOL Deductions = Min Taxable Income
-AMT Exception = AMT * 20% = Gross AMT -Foreign Tax Credit = Tentative Minimum - Regular Tax liability = AMT |
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Corporate AMT Adjustments
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LID
Long-term Contracts- % Completion Installments for sales of dealer- Not allowed Depreciation Adjustment |
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Corporate AMT Preferences
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% depletion
Private activity post 1986 tax exempt interest income Pre-1987 ACRS excess depreciation ALWAYS add back to taxable income |
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Adjusted Current Earnings
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ACE --->MOLDD
Municipal bond interest income Organizational Expense Amortization Life insurance proceeds Difference between AMT & ACE Depreciation DRD- unrelated 70% |
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AMT Exception
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$40,000 - 25% excess allowable over minimum taxable income
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Accumulated Earnings Tax
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C Corps with RE in excess of $250,000 if funds are improperly retained
Personal Service Corps-- $150,000 RE 20% tax rate on top of other taxes Doesn't include- charity, capital losses, taxes, dividends paid |
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Personal Holding Companies
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>50% owned by 5 or fewer individuals & have 60% adjusted ordinary gross income consisting of NIRD
Net rent Interest Royalties Dividends from unrelated domestic corps |
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Corporate Earnings & Profits (E&P)
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Corporate taxable income +/- adjustments
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Negative adjustments to E&P
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Federal Income Tax expense, Nondeductible penalties/contributions, Meals & entertainment, Officer Life Insurance premiums, Charity Contributions, Capital Losses
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Positive Adjustments to E&P
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Refunds of federal income taxes
Tax exempt income NOL Deductions Life Insurance Premiums- corp is beneficiary DRD Carryover of capital losses |
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Cash Dividends
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taxable to shareholder
Current E&P (dividends)---Accumulated E&P (dividends)---Stock Basis (return of capital- not taxed)---Capital gains |
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Stock Dividends
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generally not taxable to shareholder depending on whether shareholder has choice of receiving cash or other property---FMV
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Standard Liquidation
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Corporation recognizes gain on sale of assets
Shareholder recognizes gain to extent of basis in stock |
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Tax-free Reorganizations
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Nontaxable; no gain/loss
Continuity of business Basis of assets in shareholders hands is adjusted basis (NBV) |
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Section 1244 Stock
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Ordinary loss up to $50,000 ($100,000 MFJ)
Excess loss = capital loss Original owners only |
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S Corporation
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<100 Shareholders, individuals/estates/trusts
NOT nonresident aliens only one class voting stock December 31st year end required Income flows through to shareholders |
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S-corporation Election
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Election is effective as of beginning of year if made anytime before 3/15
All shareholders must consent New shareholders don't need to consent unless shareholder owns >50% stock |
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LIFO Recapture
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C Corps that elect S status must include excess of inventory computed under FIFO over LIFO in taxable income for last C corporation year
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Built-in Gains Tax
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C-corporation conversion to S corp & FMV corporate assets > NBV on election date. Sale of such assets over 10 year period result in that gain being taxed at the corporate level
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Tax on Passive Investment Income
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Income tax at highest corporate tax rate on the lesser of:
Net Income OR Excess passive investment income if tests met: S-corp has accum. C Corp E&P and Passive investment income > 25% gross receipts |
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Separately stated items
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Capital G/L; interest; rental income
Per share/day Losses limited to adjusted basis & direct shareholder loans to corporation---guarantees don't increase basis |
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Non-separately stated items
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Ordinary income
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Shareholder Basis (S-Corp)
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Initial Basis + Income (include non-taxable) + additional shareholder investments - distributions to shareholders - losses or expenses (include non-deductible)
Loss limitation= basis + direct shareholder loans - distributions |
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Form K-1
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individuals' portion of S-Corp income & expenses
report on 1040 Schedule E Shareholders taxed when earned not distributed |
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S-Corp Revocation/Termination
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Voluntary termination; Fails to meet eligibility requirements; More than 25% corp's receipts come from passive investment income for 3 consecutive yrs & S Corp has C-Corp E&P
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Section 501 C1 Corporations
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Created by Act of Congress
Tax-exempt |
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Section 501 C2 Corporations
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Organized for exclusive purpose to hold title to property, collect income from property, and turn over net income to an exempt organization
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Section 501 C3 Corporations
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Must apply & be approved---community chest/fund, foundation organized exclusively for religious, charitable, scientific, public safety, educational purposes
Lose status- influence legislation, participate/intervene political campaign, benefit any private shareholder/individual |
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Section 509 Private Foundations
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includes all Section 501 3C corporations other than those specifically excluded:
50% type charitable deduction donees Broadly publicly supported orgs>33% annual support Supporting Organizations Public Safety testing organizations |
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Unrelated Business Income (UBI)
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gross income from any unrelated trade or business "regularly" carried on, minus business deductions directly connected therewith---not substantially related to org's tax exempt purpose
NOT any activity where all work performed by unpaid workers |
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UBI Taxation
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$1,000 specific deduction---excess is taxed
Exclude: royalties, dividends, interest, annuities, rent real property < 50% personal, research, bingo games |
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Annual Return Requirement---Tax Exempt Organizations
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Form 990---gross income, receipts, contributions, disbursements
Required for most orgs under Section 501 & open to public inspection |
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Annual Return Requirement---Exceptions
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Religious/internally supported orgs <$5,000 gross receipts for year, or normally <$50,000
Churches, High schools (religious), Religious Orders, Internal support auxiliaries, Societies (missionary related), Tax exempt organized by Congress |