Chapter 13
C Corporations
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
C corporations.
Taxpaying entities. (This results in what is known as a
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
=
Credits (If Any)
–
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.
Corporations are subject to the 4-bracket graduated tax rate
structure below.
39%
(
