In general, a corporation may choose to use either the accrual or cash method of accounting no matter
how large the corporation.
Corporations calculate adjusted gross income (AGI) just as individuals do.
Corporations have a larger standard deduction than individual taxpayers because they generally have
Large corporations are allowed to use the cash method of accounting for at least the first two years of
Although a corporation may report a temporary book-tax difference for an item of income or deduction
for a given year, over the long term the total amount of income or deduction it reports with respect to that
item will be the same for both book and tax purposes.
An unfavorable temporary book-tax difference is so named because it causes taxable income to decrease
relative to book income.
Income that is included in book income, but excluded from taxable income, results in a favorable,
permanent book-tax difference.
Federal income tax expense reported on a corporation's books generates a temporary book-tax
For a corporation, goodwill created in an asset acquisition generally leads to temporary book-tax
10. In a given year, Makoto Corporation has goodwill impairment in excess of the allowable amortization for
tax purposes. It has a favorable temporary book-tax difference for that year.
11. For incentive stock options granted when ASC 718 (a codification of FAS 123R) applies, the value of the
options that vest in a given year always creates a permanent, unfavorable book-tax difference.
12. For tax purposes, companies using nonqualified stock options deduct expenses in the year the options are
13. A nonqualified stock option will create a permanent book-tax difference in a given year if it vests during
the year but is exercised in a later year.
14. In contrast to an individual, a corporation may deduct the entire amount of a net capital loss.
15. A corporation may carry a net capital loss forward five years to offset capital gains in future years but it
may not carry a net capital loss back to offset capital gains in previous years.
16. A corporation may carry a net capital loss back two years and forward 20 years.
17. A corporation may carry a net capital loss back three years and forward five years.
18. Corporations can carry net operating losses (in years other than 2008 and 2009) back two years and
forward 20 years.
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