lecture2 - Week Two Taxation of Corporations Basic Concepts...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Week Two Taxation of Corporations – Basic Concepts Determination of Corporate Taxable Income ¶14,301 General Rules There are many similarities between the rules used to determine taxable income for individuals and those used for corporations. Corporations, like individuals, are entitled to exclusions. There are, however, many differences as well; for example, corporations do not have personal deductions and do not distinguish between for AGI and from AGI deductions. ¶14,305 Accounting Periods Regular corporations may elect any tax year, regardless of the tax years of its owners. In general, other entities do not have this option. ¶14,311 Accounting Methods Most corporations must use the accrual method of accounting. ¶14,315 Capital Gains and Losses Short-term and long-term gains and losses are kept separate. A corporation determines its net short-term position and its net long-term position. If these positions are opposites (e.g., a net short-term capital loss and a net long-term capital gain), then they are netted to obtain an overall net position. If they are not opposites (e.g., a net short-term capital gain and a net long-term capital gain), then they are not netted. Net capital gains do not receive special treatment. They are added to ordinary income and taxed at regular corporate rates. Net capital losses cannot offset ordinary income. Instead, they are carried back three tax years and then forward five tax years to offset net capital gains. When carried back or forward, all such losses are considered to be short-term losses. Losses carried forward are lost forever if they are not used within the five-year period. ¶14,325 Depreciation Recapture In addition to Section 1245 and 1250 recaptures, Code Sec. 291 requires that corporations also recapture as ordinary income 20 percent of the excess of the amount that would be treated as ordinary income if the property were Section 1245 property over the amount treated as ordinary income under Section 1250.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
¶14,335 Net Operating Loss The net operating loss (NOL) of a corporation may be carried back two years and forward 20 years. A corporation may elect to carry the NOL forward only. Since all expenses of a corporation are business expenses, the only adjustment a corporation has to make to compute an NOL is to eliminate an NOL carryover if it had been used to compute taxable income. Also, there are restrictions on the amount of an NOL that a corporation may carry back to the extent that interest deductions associated with a corporate equity reduction transaction (CERT) are included in the NOL. ¶14,345 Charitable Contributions The maximum deduction permitted in any taxable year is 10 percent of adjusted taxable income (i.e., taxable income without regard to the charitable contribution deduction, the dividends-received deduction, any NOL carryback, and any capital loss carryback). If charitable contributions exceed the 10 percent limit, such excess can be carried forward for five years. The initial measure of long-term capital gain property contributed by a corporation is its
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/24/2010 for the course TXX 5762 taught by Professor Allen during the Fall '10 term at Nova Southeastern University.

Page1 / 5

lecture2 - Week Two Taxation of Corporations Basic Concepts...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online