Chapter 13C CorporationsC Corporations
Definition of Corporation. Either an organization incorporated understate law, or an unincorporated association that has “checked the box”for corporate tax treatment on Form 8832 (Entity ClassificationElection).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 aCorporation Definedsquare6C corporations.Taxpaying entities. (This results in what is known as adouble tax effect. The corporation computes tax on the net income.When a corporation distributes its income, the corporation’sshareholders report dividend income on their own tax returns.)square6S corporations.Not subject to regular corporate income tax.They aretreated 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 ontheir separate returns.
C Corporations —Tax Year and Accounting MethodCorporationshave the unrestricted right to select its annual taxyear, 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 haveaverage annual gross receipts of $5 million or less in the threepreceding years, or by PSCs.Must file Form 1120 on or before the 15th day of 3rd monthfollowing close of tax year even if it has no taxable income
C Corporations—Comparison with Individual Taxpayerssquare4Organizational Expendituressquare4Dividend Received Deductionsquare4Charitable Contributionsquare4Interest Expensesquare4Amortization of Original Issuesquare4Bond Redemptions-Premiumssquare4Stock Redemptions (not deductible)square4Travel, Meals and Entertainmentsquare4Insurance Premiumssquare4Research and Experimentalsquare4Fines (not deductible)square4Bad Debtssquare4Worthless Securitiessquare4Casualty Losses (same as individuals’ business useDifferent TreatmentSimilar Tax TreatmentExpensesChapter 16, Exhibit 6bsquare4Compensationsquare4Educational Expensessquare4Net Operating Lossessquare4Capital Gains and Lossescasualty losses)square4Taxessquare4Depreciation (except Sec. 1250 recapture)square4Amortizationsquare4Depletionsquare4Political Contributions & Lobbyingsquare4Business Investigation Expensesquare4Business Start Up Expense
C Corporations— Tax FormulaCredits (If Any)–Gross Regular Tax Liability=Tax RatexTaxable 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, andpassive activity loss rules do not apply to regular C corporations.
Corporate Tax Rates34% (3rd bracket)100,00075,00025% (2nd bracket)75,00050,00015% (1st bracket)$50,000$0Marginal Tax Rate:But Not Over:At Least:Tax Rates on Corporate Taxable IncomeComputing Regular Income Tax.Corporations are subject to the 4-bracket graduated tax ratestructure below.39%(
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