2010_CCH_Essentials_Chapter_14

2010_CCH_Essentials_Chapter_14 - CCH Essentials of Federal...

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Unformatted text preview: CCH Essentials of Federal Income Taxation Chapter 14 Chapter C Corporations ©2009 CCH. All Rights Reserved. 4025 West Peterson Ave. Chicago, IL 60646-6085 www.CCHGroup.com Business Entities • • • • • Partnerships Limited liability companies Limited liability partnerships S corporations C corporations Chapter 14 CCH Essentials of Federal Income Taxation 2 of 13 C Corporation • Historically, a business was taxed as a C corporation if it had certain traits, such as continuity of life, centralized management, limited liability, free transferability of ownership interests, etc. Now a business can choose whether it wants to be treated (and taxed) as a C Corporation or as a partnership. This is called the “check the box” rules. CCH Essentials of Federal Income Taxation 3 of 13 • Chapter 14 Accounting Methods Accrual Method • Corporations report income when it is earned even though Corporations they may not have received it in cash. Expenses are deductible as a product or service is used. deductible Income is taxable when received, and expenses are deductible Income when paid. when The corporation uses the accrual method for computing gross The profit from the sale of inventory and the cash method for other income and deductions. other Chapter 14 CCH Essentials of Federal Income Taxation 4 of 13 Cash Method • • Hybrid Method Corporate Taxable Income Formula Gross income – Deductions (except CC, DRD, DPA deduction, NOL Deductions carryback, and STCL carryback) carryback, = Taxable income for figuring CC – Charitable contribution (CC) deduction Charitable = Taxable income for figuring DRD – Dividends received deduction (DRD) Dividends = – – – Taxable income before DPA deduction and carry backs Domestic Productions Activities (DPA) deduction Domestic NOL carryback NOL Short-term capital loss (STCL) carryback Short-term CCH Essentials of Federal Income Taxation 5 of 13 = Taxable income Chapter 14 Organizational Costs • Corporations can deduct up to $5,000 of its Corporations organizational costs in the tax year in which its business begins. This amount is reduced dollar-forbusiness dollar when total organizational costs exceed dollar $50,000. $50,000. Any organizational costs not immediately expensed Any are amortized over a period of 180 months, beginning with the month in which the corporation begins business. begins Organizational costs include legal fees for setting up Organizational the corporation, state incorporation costs, etc. the Chapter 14 CCH Essentials of Federal Income Taxation 6 of 13 • • Start-Up Costs • Corporations can deduct up to $5,000 of its start-up Corporations costs in the tax year in which its business begins. This amount is reduced dollar-for-dollar when total start-up costs exceed $50,000. costs Any start-up costs not immediately expensed are Any amortized over a period of 180 months, beginning with the month in which the corporation begins business. the Start-up costs include are costs incurred that would be Start-up currently deductible if it were not for the fact that the business was not yet in existence. They include costs incurred investigating whether to enter into a business. incurred Chapter 14 CCH Essentials of Federal Income Taxation 7 of 13 • • Charitable Contributions • Corporations cannot currently deduct charitable Corporations contributions that exceed 10% of its taxable income, computed before dividends received deduction, the domestic production activities deduction and any NOL or capital loss carry backs. or Any utilized contributions can be carried over to the Any next five tax years, where they will be subject to the 10% taxable income limitation. 10% • Chapter 14 CCH Essentials of Federal Income Taxation 8 of 13 Capital Losses • • • Corporations can only deduct capital losses Corporations to the extent of their capital gains. to Any unutilized capital losses can be carried Any back two tax years and carried forward five tax years. tax All capital losses carried over by a C All corporation are characterized as short-term capital losses and are treated as such in the netting process in the carryover year(s). netting Chapter 14 CCH Essentials of Federal Income Taxation 9 of 13 Corporate Tax Rates Taxable Income $0-50,000 $50,001-75,000 $75,001-100,000 $100,001-335,000 $335,001-10,000,000 $10,000,001-15,000,000 $15,000,001-18,333,333 Over $18,333,333 Corporate Tax Rate 15.0% 25.0 34.0 39.0 34.0 35.0 38.0 35.0 Chapter 14 CCH Essentials of Federal Income Taxation 10 of 13 Dividends Received Deduction Percentage Owned Less than 20% From 20% to less than 80% From 80% to 100% DRD Percentage 70% 80% 100% Chapter 14 CCH Essentials of Federal Income Taxation 11 of 13 Estimated Tax Payments Date Tax Due 15th of the 4th month 15th of the 6th month 15th of the 9th month 15th of the 12th month Percentage of Estimated 25% 25 25 25 Chapter 14 CCH Essentials of Federal Income Taxation 12 of 13 Avoiding the Penalty for Avoiding Underpayment of Estimated Tax Underpayment • Small corporations can avoid the penalty for Small underpaying estimated tax by making (even) quarterly payments that equal the lesser of (i) 100% lesser of the current year’s tax liability or (ii) 100% of the prior year’s tax liability. prior Large corporations (those with taxable income of at Large least $1 million in any of its past three tax years) can avoid the penalty by making (even) estimated payments that equal at least 100% of the current year’s tax liability. CCH Essentials of Federal Income Taxation 13 of 13 • Chapter 14 ...
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