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Chapter 14 - 277 Chapter 14 C Corporations Highlights of...

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© 2010 CCH. All Rights Reserved. Chapter 14 277 Chapter 14 C Corporations Highlights of 2010 Tax Changes In 2010, businesses can elect to expense up to $10,000 of start-up costs (up from $5,000 in 2009). When start-up costs exceed $60,000, the amount that can be expensed is reduced by the amount of the excess. In 2009, there was an enhanced deduction for corporations that contributed their appreciated inventory items to public charities where the inventory was used solely for the care of the ill or needy, or when the inventory was used to care for infants. This enhanced deduction expired at the end of 2009 and had not been extended by the time the book went to press. Teaching Suggestions Discuss the differences between the calculation of taxable income for corporations and individual taxpayers. Discussion should include: Dividends received deduction (1) Charitable contributions (2) Capital gains and losses (3) Organizational and start-up costs (4) Solutions to Questions and Problems The tax laws now allow businesses to “check-the-box” to determine which type of entity they wished to be 1. taxed as for purposes of Federal income taxes. ¶1401. ¶1401.01. 2. No gain or loss is recognized by either the shareholder or the corporation when property is transferred to a. the corporation solely in exchange for 100% of the stock of the corporation. Sanchez’s basis in the stock is her $30,000 basis in the land she contributes to the corporation. b. Sanchez’s $30,000 basis in the land becomes the corporation’s basis in the land. c. ¶1401.01. 3. No gain or loss is recognized by either the shareholder or the corporation when property is transferred to a. the corporation solely in exchange for 100% of the stock of the corporation. Diaz’s basis in the stock is his $30,000 basis in the land he contributes to the corporation. b. Diaz’s $30,000 basis in the land becomes the corporation’s basis in the land. c. ¶1401.01. 4. Neither Howard nor the corporation recognize any gain or loss on the transfer of property during the a. formation of the corporation. O’Brien recognizes $25,000 of ordinary income for the services he performs in exchange for the stock in the corporation. Howard’s basis in his shares is the $25,000 he contributes to the corporation. b. O’Brien’s basis in his shares is the $25,000 he contributes to the corporation (by paying tax on the service c. income). a. Certain items related to the business of a sole proprietor are not deducted in computing the pro fi ts of the 5. business on Schedule C. These include all gains and losses from the sale of business property, the deduction for the proprietor’s health insurance, retirement plan contributions and one-half of the self-employment tax.
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278 Essentials of Federal Income Taxation Chapter 14 © 2010 CCH. All Rights Reserved. Although these deductions reduce AGI, they do not reduce the net pro fi ts of the business. Furthermore, all charitable contributions made by an individual are deductible as itemized deductions. In contrast, all business deductions are deducted from gross income on the corporate tax return. ¶1402.
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