FTax IRGTB ch19 p001-018

Corporations are more limited in their charitable

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Unformatted text preview: 19-12 through 19-17 and 291, 170(b)(2), and 1202(a).] d. Excess charitable contributions may be carried over to each of the five succeeding years, subject to certain limitations. Only answer d is true for these reasons: the carryover period is limited to five years, a charitable contribution deduction is allowed only if the corporation has taxable income, excess contributions cannot be carried back, and contributions made in the carryover year must be deducted before considering any carryovers. (See pp. 19-12 through 19-15.) 31. 19-14 Chapter 19 Corporations: Formation and Operation 32. d. Because the charitable contributions were erroneously deducted in full to arrive at an incorrect taxable income number of $100,000, the first thing that must be done is to add back the $12,000 of deductions. Thus, taxable income before the charitable contribution deduction is correctly $112,000. T Corporation's correct contribution deduction, therefore, is limited to $11,200 ($112,000 correct taxable income before deduction 10%). The remaining $800 of charitable contributions must be carried forward. Adding the $800 back to the erroneously computed taxable income of $100,000 arrives at corrected taxable income of $100,800. (See pp. 19-12 through 19-15.) c. Net capital losses of corporations may only be used to offset corporate capital gains. Since the $2,000 capital loss occurred in the corporation's first year, the three-year carryback is irrelevant. Thus, $12,000 $4,000 $2,000 carryover $6,000. (See pp. 19-15 and 19-16.) b. Z Corporation's taxable income is $633,000, computed as follows: Taxable income before capital and 1231 gains and losses 1245 depreciation recapture from gain on sale of equipment treated as ordinary income 1231 gains and losses: Gain on sale of land $ 70,000 Less loss on sale of equipment (29,000) Net 1231 gain treated as long-term capital gain $ 41,000 Long-term capital loss (18,000) Net long-term capital gain $ 23,000 Less short-term capital loss (5,000) Net capital gain Taxable income (See pp. 19-16 and 19-17.) $600,000 15,000 33. 34. 18,000 $633,000 35. b. D has ordinary income under both 1250 and 291. The realized gain less ordinary income equals the 1231 gain. Realized gain is $440,000 [$1 million ($800,000 240,000 $560,000)]. Excess depreciation is $110,000 ($240,000 $130,000). Section 1250 depreciation is $110,000 (lesser of $440,000 or $110,000). Section 291 gain is $26,000 ($240,000 $110,000 $130,000 20%). Section 1231 gain is $304,000 ($440,000 realized gain $110,000 1250 gain $26,000 291 gain). (See Example 15 and pp. 19-16 and 19-17.) e. The correct amount is $680,000 ($2 million 34%). Since Z Corporation's taxable income exceeds $335,000, it is taxed at the flat rate of 34 percent. (See p. 19-18.) e. A regular corporation's tax on $20,000 of taxable income will be $3,000 ($20,000 15%). A personal service corporation (PSC) is not allowed to use the lower corporate tax rates. Instead, a PSC is subject to a flat rate of 35 percent. Consequently, the PSC's tax on $20,000 of incom...
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This note was uploaded on 02/05/2012 for the course ACCT 112 taught by Professor Smith during the Spring '11 term at Adrian College.

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