Chapter+13+Powerpoint+Slides - Chapter 13 C Corporations Corporation Defined Definition of Corporation Either an organization incorporated under state

Chapter 13 C Corporations

Definition of Corporation . Either an organization incorporated under state law, or an unincorporated association that has “checked the box” for corporate tax treatment on Form 8832 (Entity Classification Election). Code Sec. 7701; Reg. §301.7701-1 to 3. Two Classifications of Corporate Entities. C corporations. Taxpaying entities. (This results in what is known as a Corporation Defined square6 double tax effect. The corporation computes tax on the net income. When a corporation distributes its income, the corporation’s shareholders report dividend income on their own tax returns.) square6 S corporations. Not subject to regular corporate income tax. They are treated in a manner similar to partnerships, i.e., as pass-through entities, in that net profit or loss flows through to the owners to be reported on their separate returns.

C Corporations — Tax Year and Accounting Method Corporations have the unrestricted right to select its annual tax year, regardless of the tax years employed by its shareholders. Most corporations must use the accrual method. The cash method MAY be used by C corporations that have average annual gross receipts of $5 million or less in the three preceding years, or by PSCs. Must file Form 1120 on or before the 15th day of 3rd month following close of tax year even if it has no taxable income

C Corporations—Comparison with Individual Taxpayers square4 Organizational Expenditures square4 Dividend Received Deduction square4 Charitable Contribution square4 Interest Expense square4 Amortization of Original Issue square4 Bond Redemptions-Premiums square4 Stock Redemptions (not deductible) square4 Travel, Meals and Entertainment square4 Insurance Premiums square4 Research and Experimental square4 Fines (not deductible) square4 Bad Debts square4 Worthless Securities square4 Casualty Losses (same as individuals’ business use Different Treatment Similar Tax Treatment Expenses Chapter 16, Exhibit 6b square4 Compensation square4 Educational Expenses square4 Net Operating Losses square4 Capital Gains and Losses casualty losses) square4 Taxes square4 Depreciation (except Sec. 1250 recapture) square4 Amortization square4 Depletion square4 Political Contributions & Lobbying square4 Business Investigation Expense square4 Business Start Up Expense

C Corporations— Tax Formula Credits (If Any) – Gross Regular Tax Liability = Tax Rate x Taxable Income (Loss) = Deductions – Gross Income = Cost of Goods Sold – Exclusions – Ord. and Cap. Income “From Whatever Source Derived” Net Tax Due or Refundable = Personal Holding Co. Tax (If Any) + Accumulated Earnings Tax (If Any) + FICA Taxes + Alt. Minimum Tax (If Any) + Net Regular Tax Liability = N.B.: AGI, standard deductions, personal exemptions, at-risk rules, and passive activity loss rules do not apply to regular C corporations.

Corporate Tax Rates 34% (3rd bracket) 100,000 75,000 25% (2nd bracket) 75,000 50,000 15% (1st bracket) $ 50,000 $ 0 Marginal Tax Rate: But Not Over: At Least: Tax Rates on Corporate Taxable Income Computing Regular Income Tax.