AC553_Chapter_14_Part III - Chapter 14 Taxation of...

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Unformatted text preview: Chapter 14 Taxation of Corporations —Basic Concepts Part III ©2011 CCH. All Rights Reserved. 4025 W. Peterson Ave. Chicago, IL 60646-6085 1 800 248 3248 www.CCHGroup.com 1 Chapter 14 Exhibits 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Determination of Corporate Taxable Income Capital Gains and Losses Net Capital Gain Net Capital Losses Capital Gains – Example 1 Capital Gains – Example 2 Depreciation Recapture Depreciation Recapture – Example Net Operating Loss Net Operating Loss - Example Chapter 14, Exhibit Contents A 2 of 57 Chapter 14 Exhibits 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Charitable Contributions Ten Percent Limitation Initial Measure of Contribution Long-Term Capital Gain Property Ordinary Income Property Inventory and Research Property Charitable Contribution Deduction – Example 1 Charitable Contribution Deduction – Example 2 Related Taxpayers – Losses and Expenses Organizational Expenditures Chapter 14, Exhibit Contents B 3 of 57 Chapter 14 Exhibits 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. Organizational Expenses – Example Start-up Expenditures Dividends-Received Deduction Dividends-Received Deduction – Example 1 Dividends-Received Deduction – Example 2 Dividends-Received Deduction – Example 3 Extraordinary Dividends Extraordinary Dividends – Example Executive Compensation Domestic Production Activities Deduction Domestic Production Activities Deduction – Example Chapter 14, Exhibit Contents C 4 of 57 Determination of Corporate Taxable Income n n n n Can use any calendar or fiscal tax year u Regardless of tax years of its owners Ability to have a tax year different from that of its owners can produce tax savings, especially in year of incorporation Personal-service corporations must use a calendar year for their tax year unless they can establish a business purpose for a fiscal year Most corporations must use the accrual method u S corporations, qualified farming businesses, qualified personal service corporations, and corporations with average annual receipts of ≤$5 million for three prior tax years may use cash basis Chapter 14, Exhibit 1 5 of 57 Capital Gains and Losses n n n n Gains and losses resulting from taxable sale or exchange of capital assets must be classified as short-term or long-term Net short-term and net long-term positions must be computed Then determine corporation’s overall capital asset position There are six possible combinations: 1. NLTCG > NSTCL 2. NLTCG < NSTCL 3. NSTCG > NLTCL 4. NSTCG < NLTCL 5. NLTCG and NSTCG 6. NLTCL and NSTCL Chapter 14, Exhibit 2 6 of 57 Net Capital Gain n n Corporations do not receive preferential treatment on NLTCG Net capital gains (combinations 1, 3, and 5, in previous slide) are included in corporation’s gross income and taxed at regular rates Chapter 14, Exhibit 3 7 of 57 Net Capital Losses n n n n Corporations may not take a deduction for net capital losses in year in which they occur u Capital losses only against capital gains Net capital losses (combinations 2, 4, and 6, in previous slide) are carried back to three preceding tax years to offset net capital gains claimed in those years All net capital losses are carried back or forward as short-term capital losses If some net capital loss remains, it is carried forward for five tax years u Unused losses at end of the five-year carry forward period are lost forever Chapter 14, Exhibit 4 8 of 57 Capital Gains – Example 1 Mara Inc. had the following capital gains (losses) and TI Year 2008 2009 2010 Capital Gain (Loss) Position TI GTL $50,000 NLTCG $100,000 $22,250 $0 $100,000 $22,250 $40,000 NSTCG $335,000 $113,900 In 2011, it had a $30,000 LTCG, $40,000 STCG, $20,000 LTCL, and a $15,000 STCL. Mara had gross receipts (other than the capital asset transactions) of $250,000 and $140,000 of expenses in 2011. What is Mara Inc.’s capital assets position in 2011 and how is it taxed? Chapter 14, Exhibit 5a 9 of 57 Capital Gains – Example 1 Mara Inc. has: $10,000 NLTCG ($30,000 - $20,000) $25,000 NSTCG ($40,000 - $15,000) NLTCG does not receive tax-favored treatment; it is added to its ordinary income. NSTCG is ordinary income. Thus, Mara Inc.’s TI is $145,000 ($250,000 + $10,000 + $25,000 - $140,000) Chapter 14, Exhibit 5b 10 of 57 Capital Gains – Example 2 Assume the same information in example 1 except that Mara Inc.’s LTCL in 2011 was $110,000. What is Mara Inc.’s capital assets position in 2011 and how is it taxed? Chapter 14, Exhibit 6a 11 of 57 Capital Gains – Example 2 Mara Inc. has an overall ($55,000) NLTCL: ($80,000) NLTCL ($30,000 - $110,000) $25,000 NSTCG ($40,000 - $15,000) ($55,000) NLTCL The NLTCL does not affect 2011 taxable income. It can be carried back three years and then forward five years or just carried forward five years. Chapter 14, Exhibit 6b 12 of 57 Capital Gains – Example 2 Assuming Mara Inc. carries back the ($55,000) NLTCL: The loss is carried as a STCL and it will completely offset 2008’s $50,000 NLTCG. Mara Inc.’s revised 2008 TI = $50,000 and revised GTL = $7,500. So, Mara Inc. will receive a $14,750 refund ($22,250 - $7,500) for 2008. The remaining ($5,000) loss ($55,000 - $50,000) will be carried to 2010 and will offset part of 2010’s NSTCG. Mara Inc.’s revised 2010 TI = $330,000 and revised GTL = $111,950. So, Mara Inc. will receive a $1,950 refund ($113,900 - $111,950) for 2010. Mara Inc.’s total refund is $16,700 ($14,750 + $1,950). Chapter 14, Exhibit 6c 13 of 57 Depreciation Recapture n n n n Corporations generally compute ordinary income recapture on Code Secs. 1245 and 1250 assets in same manner as individuals Corporations also have special recapture rules under Code Sec. 291 Code Sec. 291 requires that 20 percent of excess of any amount that would be treated as ordinary income under Code Sec. 1245 over amount treated as ordinary income under Code Sec. 1250 is additional depreciation recapture, and thus, ordinary income If gain recognized on transaction > ordinary income recognized under Code Secs. 1245, 1250, or 291, then such excess is a Code Sec. 1231 gain Chapter 14, Exhibit 7 14 of 57 Depreciation Recapture - Example ABC Corp. acquired an office building for $11,700,000. The building was depreciated over 39 years using the straight-line method. On 1/1/2011 the building was sold for $11,550,000. ABC Corp. took 13 full years of depreciation on the building prior to its sale. What is ABC Corp.’s realized and recognized gain on the sale of the building in 2011? Chapter 14, Exhibit 8a 15 of 57 Depreciation Recapture - Example Accumulated depreciation: $11,700,000/39 x 13 = $3,900,000 AR $11,550,000 AB ($11,700,000 - $3,900,000) 7,800,000 Realized gain $3,750,000 Recognized gain $3,750,000 Ordinary income (OI) if §1245 asset: lesser of $3,900,000 or $3,750,000 $3,750,000 OI if §1250 asset $0 Excess §1245 gain $3,750,000 §291 gain (OI): 20% x $3,750,000 $750,000 §1231 gain: ($3,750,000 - $750,000) $3,000,000 Chapter 14, Exhibit 8b 16 of 57 Net Operating Loss n n n n n n Carry net operating loss (NOL) back two years and forward 20 years. NOLs for 2008 and 2009 may be carried back three, four, or five years. However, for firms that do not qualify as a small business (gross receipts of $15 million or less) the amount of income that can be offset in the fifth year is limited to 50% of taxable income for that year without regard to the NOL carried back. Election to forego carryback and carry the NOL forward only Any unused NOL at end of carryforward period is lost forever The decision rule: Carry back and/or forward such that expected present value of after-tax cash flow is maximized Corporations are permitted full dividends-received deduction in computing NOLs NOL deductions for each year are considered separately u NOL carryovers from other years are omitted in computing the NOL for present year Chapter 14, Exhibit 9 17 of 57 Net Operating Loss - Example Fard Inc. had $100,000 operating gross income and $135,000 operating expenses and a ($30,000) net operating loss (NOL) carryover from 10 years ago. Fard Inc. also had the following: $1,000 interest income from a savings account $70,000 dividends from a 30%-owned corporation (Fard Inc. is entitled to a $56,000 dividends-received deduction (DRD) – 80% x $70,000) $1,500 LTCG on sale of stock ($10,000) STCL on sale of stock $9,000 LTCG on sale of painting held as an investment What is Fard Inc.’s NOL? Chapter 14, Exhibit 10a 18 of 57 Net Operating Loss - Example Gross Income: From operations $100,000 Interest 1,000 NLTCG 500 Dividends 70,000 $171,500 Deductions: Operating expenses 135,000 DRD 56,000 NOL carryover 30,000 221,000 TI ($49,500) Chapter 14, Exhibit 10b 19 of 57 Net Operating Loss - Example Fard Inc.’s NOL is ($19,500) determined as follows: TI NOL carryover NOL for this year Chapter 14, Exhibit 10c ($49,500) 30,000 ($19,500) 20 of 57 Charitable Contributions n Deductibility of charitable contributions is dependent upon: (1) What type of property is donated (2) When property is donated (3) To whom property is donated (4) Corporation’s adjusted taxable income n n n Property type determines initial dollar measure of contribution Property must be donated to a qualified charitable organization Overall deduction is limited to 10 percent of adjusted taxable income Chapter 14, Exhibit 11 21 of 57 Ten Percent Limitation n n n Charitable deduction is limited to: 1. lesser of 10 percent of adjusted taxable income or 2. sum of initial measures of all property donated during tax year Adjusted taxable income equals: Taxable income without regard to: 1. Charitable contribution deduction 2. Dividends-received deduction 3. Net operating loss carryback 4. Capital loss carryback 5. Domestic production activities deduction Excess contributions can be carried forward five years Chapter 14, Exhibit 12 22 of 57 Initial Measure of Contribution n n n n Depends upon property contributed to charity Initial measure of cash contributions = amount of cash contributed Initial measure of property contributions = their FMVs u Under certain conditions FMV is not allowed Must meet qualified appraisal and documentation rules of Code Sec. 170(f)(11) Chapter 14, Exhibit 13 23 of 57 Long-Term Capital Gain Property Initial measure of contribution = its FMV n If property is tangible personal property not related to charity’s tax-exempt purpose or certain other property: Initial measure = FMV - amount of long-term capital gain that would have been recognized if property had been sold n n Section 1231 property is considered as long-term capital gain property unless it has depreciation recapture potential under Code Secs. 1245, 1250, and 291 u It is ordinary income property to extent of recapture potential Chapter 14, Exhibit 14 24 of 57 Ordinary Income Property n Initial measure = FMV - any ordinary income that would have been recognized if property had been sold u Usually this equals lesser of the property’s: FMV or AB Chapter 14, Exhibit 15 25 of 57 Inventory and Research Property Contributions of qualified inventory property to public charities or scientific research property to educational institutions: Initial measure = property’s AB + one-half of the appreciation - cannot exceed twice the amount of the adjusted basis n Qualified inventory must have use related to function or purpose of charitable organization u Inventory must be used for care of ill, the needy, or infants n Chapter 14, Exhibit 16a 26 of 57 Inventory and Research Property n n Qualified research property must be constructed by donor and contributed within two years after construction is substantially completed Qualified property also includes: u Computer technology u Software, u Equipment given to certain schools (kindergarten to 12) within two years of acquisition or construction Chapter 14, Exhibit 16b 27 of 57 Charitable Contribution Deduction - Example 1 C Corp.’s TI before the charitable contribution deduction was $410,000 C Corp. contributed $40,000 to a qualified charity during the year Included in the TI is a $20,000 DRD C Corp. has a $5,000 charitable contribution from two years ago (not in the $410,000) What is C Corp.’s charitable contribution deduction? Chapter 14, Exhibit 17a 28 of 57 Charitable Contribution Deduction - Example 1 C Corp.’s charitable contribution deduction is limited to the lesser of: (1) actual contribution + the carryover, or (2) 10% of adjusted taxable income (ATI) ATI = $410,000 + $20,000 = $430,000 Charitable contribution deduction is $43,000 lesser of (1) $45,000 ($40,000 + $5,000) or (2) $43,000 (10% x $430,000) C Corp. also has a $2,000 charitable contribution carryover to next year (it will be three years old next year) Chapter 14, Exhibit 17b 29 of 57 Charitable Contribution Deduction - Example 2 R Co. contributed the following assets to qualified charities during the year: 1. Painting bought three years ago as an investment (FMV = $100,000, AB = $40,000) to an art museum 2. Inventory (FMV = $24,000, AB = $20,000) 3. Inventory (FMV = $31,000, AB = $17,000); the inventory will be used by the charity for the care of the needy 4. Truck (FMV = $30,000, AB = $14,000, cost = $26,000); the truck will be used by the charity in its operations What is the initial measure of R Co.’s charitable contributions? Chapter 14, Exhibit 18a 30 of 57 Charitable Contribution Deduction - Example 2 The initial measure of R Co.’s charitable contributions is $162,000 Painting: $100,000 (FMV) Inventory: $20,000 (FMV – OI if sold = $24,000 - $4,000) Inventory used by the charity for the care of the needy: $24,000 (AB + [½ x appreciation]); not to exceed [2 x AB]) $17,000 + (½ x $14,000) = $24,000; not to exceed 2 x $17,000 = $34,000 Truck used by the charity in its operations: $18,000 (FMV – OI if sold = $30,000 - $12,000) Total initial measure = $100,000 + $20,000 + $24,000 + $18,000 = $162,000 Chapter 14, Exhibit 18b 31 of 57 Related Taxpayers–Losses and Expenses n n Related taxpayers are viewed as a single economic unit u Certain family members u Related persons include: « corporation and an individual with > 50% direct and/or indirect ownership « two corporations if same persons own > 50% in value of the outstanding stock in each corporation « fiduciary of a trust and a corporation if trust or grantor owns > 50% of stock Constructive ownership rules apply in determining ownership Chapter 14, Exhibit 19a 32 of 57 Related Taxpayers–Losses and Expenses n n n n n Loss disallowance rules apply to any sale at a loss Disallowance of loss is permanent for seller Buyer’s initial basis in property = purchase price Buyer is permitted to reduce any gain recognized on subsequent sale by amount of previously disallowed loss Expenses commonly disallowed under related taxpayer rule are interest and compensation payable by an accrual-basis corporation to its cash-basis shareholders Chapter 14, Exhibit 19b 33 of 57 Organizational Expenditures n n n Expenditures related to the organization process incurred when a corporation is formed such as: u Accounting and legal fees u Incorporation fees u Expenses of organizational meetings Generally are incident to creation of corporation u Are capitalized and charged to capital account Corporation may elect to expense organizational expenses in year it begins business u Deduction is limited to the lesser of: (1) the actual organizational expenses or (2) $5,000 u $5,000 is reduced dollar-for-dollar by amount total organizational expenses exceed $50,000—at $55,000 there would be no deduction Chapter 14, Exhibit 20a 34 of 57 Organizational Expenditures n n n Remaining organizational expenses may be amortized over a 180month period beginning with month the corporation begins business If election to amortize is made and business is dissolved prior to end of amortization period u Remaining organizational expenditures are deductible in year of dissolution If election is not made: u Organizational expenses must be capitalized and are deductible only upon dissolution Chapter 14, Exhibit 20b 35 of 57 Organizational Expenses - Example Mac Co., uses the calendar year and began business on June 1, 2011. It incurred the following expenses in June (all were paid when incurred): 1. Organizational meeting expenses $8,000 2. Legal expenses in forming the corporation 3,000 3. Incorporation expenses 1,920 4. Expenses of printing stock certificates 1,000 5. Expenses of selling stock 1,000 What is Mac Co.’s organizational expenses deduction for this year? Chapter 14, Exhibit 21a 36 of 57 Organizational Expenses - Example What is Mac Co.’s organizational expenses deduction for the year is $5,308 The expenses of printing and selling stock are not organizational expenses. Total organizational expenses are $12,920. Assuming Mac Co. elects to expense the costs, it will deduct the first $5,000 plus (([$12,920 - $5,000]/180) x 7) = $5,308. Seven is for the number of months (June through December) in the first year. Chapter 14, Exhibit 21b 37 of 57 Start-up Expenditures n n n n Different from organizational expenditures. Business expenses paid or incurred in connection with: u Investigating creation or acquisition of an active trade or business u Creating an active trade or business u Conducting an activity engaged in for profit and for production of income before time in which active trade or business begins Start-up expenditures are capitalized May elect to expense start-up expenses in year it begins business. u Deduction is limited to the lesser of: (1) the actual organizational expenses or (2) $5,000 u $5,000 is reduced dollar-for-dollar by amount that total start-up expenses exceed $50,000—at $55,000 there would be no deduction Chapter 14, Exhibit 22a 38 of 57 Start-up Expenditures n n n Remaining start-up expenses may be amortized over a 180-month period beginning with month corporation begins business If election is made and business is disposed of prior to end of amortization period u Remaining start-up expenditures are deductible in the year of disposition If election is not made: u Start-up expenses must be capitalized and are deductible only upon dissolution Chapter 14, Exhibit 22b 39 of 57 Dividends-Received Deduction n n n Dividends-received deduction (DRD) provides some relief to double taxation u Once at the corporate level u And again at the shareholder level at the time of distribution of after-tax earnings) Qualifying dividend u Those paid by domestic corporations subject to corporate income tax Stock must have been held for > 45 days to be eligible for DRD Chapter 14, Exhibit 23a 40 of 57 Dividends-Received Deduction n DRD = percentage of the dividend received 70% for corporations owning < 20% of distributing corporation 80% for corporations ≥ 20% but < 80% of distributing corporation 100% for corporations owning ≥ 80% of distributing corporation and both corporations are members of an affiliated group Chapter 14, Exhibit 23b 41 of 57 Dividends-Received Deduction n n DRD is constrained by firm’s adjusted taxable income DRD equals: 70% or 80% x lesser of: (1) dividends received from taxable, unaffiliated domestic corporations or (2) the firm’s taxable income, as adjusted. n If firm has a current net operating loss or if full DRD creates a net operating loss u Firm takes full DRD (based on the amount of the dividend and not constrained by adjusted taxable income) Chapter 14, Exhibit 23c 42 of 57 Dividends-Received Deduction n Adjusted taxable income equals: Corporation's taxable income without regard to: 1. DRD 2. NOL carryback and carryforward deduction 3. Capital loss carryback 4. Dividends production activities deduction Chapter 14, Exhibit 23d 43 of 57 Dividends-Received Deduction n Limitations on aggregate amount of DRDs u First determined for dividends received from ≥ 20% owned corporations u Then determined for dividends received from < 20% owned corporations « After taxable income is reduced by first determination Chapter 14, Exhibit 23e 44 of 57 Dividends-Received Deduction - Example 1 Rhe Corp. has the following income and expenses: Operating revenue $800,000 COGS 320,000 Operating expenses 520,000 Dividends received from a 25%-owned corporation 100,000 What is Rhe Co.’s DRD, TI and GTL? Chapter 14, Exhibit 24a 45 of 57 Dividends-Received Deduction - Example 1 1. 2. 3. 4. 5. 6. Compute ATI (TI before the 4 adjustments) = $80,000 (Revenue – COGS – Operating Expenses + Dividends) ($800,000 - $300,000 - $520,000 + $100,000) Tentative DRD limit = $64,000 (80% x $80,000) Tentative DRD = $80,000 (80% x $100,000) DRD = lesser of $64,000 or $80,000 = $64,000 TI = $80,000 - $64,000 = $16,000 GTL = $2,400 (15% x $16,000) Chapter 14, Exhibit 24b 46 of 57 Dividends-Received Deduction - Example 2 Assume the same facts as in example 1 except operating expenses are $520,001, not $520,000. 1. Compute ATI (TI before the 4 adjustments) = $79,999 (Revenue – COGS – Operating Expenses + Dividends) ($800,000 - $300,000 - $520,001 + $100,000) 2. Tentative DRD limit = $63,999 (80% x $79,999) 3. Tentative DRD = $80,000 (80% x $100,000) 4. DRD = lesser of $63,999 or $80,000 = $64,000; however, full DRD creates an NOL ($79,999 - $80,000 = ($1)), so Rhe Corp.’s DRD = $80,000 5. TI = $79,999 - $80,000 = ($1) 6. GTL = $0 Chapter 14, Exhibit 25 47 of 57 Dividends-Received Deduction - Example 3 ABC Corp. has the following income and expenses: Sales $300,000 Expenses 400,000 Dividends from a 30%-owned corporation 300,000 Dividends from a 10%-owned corporation 400,000 What is ABC Corp.’s DRD and TI? Chapter 14, Exhibit 26a 48 of 57 Dividends-Received Deduction - Example 3 Sales $300,000 Dividends 700,000 $1,000,000 Expenses 400,000 Income before DRD $600,000 DRD 80% x lesser of: (1) $300,000 (dividend) or (2) $600,000 (TI) = $240,000 TI 70% lesser of: (1) $400,000 (dividend) or (2) $600,000 (TI) - $300,000 (aggregate dividends from ≥ 20%-owned corporations = $150,000 Chapter 14, Exhibit 26b 210,000 450,000 49 of 57 Extraordinary Dividends n n n n n Basis of stock held by corporation must be reduced by nontaxed portion of any extraordinary dividend received by corporation with respect to stock Basis not reduced if stock was held > two years before earliest date that dividend is declared, agreed to, or announced Nontaxed portion of cash distribution is amount that is offset by DRD Nontaxed portion of property distribution is property’s FMV - any liabilities assumed by shareholder that is offset by DRD Dividend is deemed extraordinary when it exceeds 10% of a corporation’s AB in a share of stock (5 percent in the case of preferred stock) u An alternative permits corporation to substitute FMV of share of stock (instead of AB) on day before ex-dividend date Chapter 14, Exhibit 27a 50 of 57 Extraordinary Dividends n n n Basis reduction takes effect immediately before disposition of stock u Basis adjustment may not reduce corporation’s AB in stock below zero u Nontaxed portions of extraordinary dividends that otherwise would reduce basis below zero are treated as gain from a sale or exchange of stock in year in which extraordinary dividend is received Reduction will not apply if stock was held by corporation for entire period distributing corporation and any predecessor has been in existence Dividends qualifying for 100% DRD are not subject to extraordinary dividend rule Chapter 14, Exhibit 27b 51 of 57 Extraordinary Dividends - Example Jones Co. purchased 1,000 shares of ABC stock on January 15, 2011 for $50,000. On December 15, 2011, Jones Co. received a $7.00 per share dividend on the ABC stock. Jones Co. took a $4,900 DRD (70% x $7,000) in 2011. FMV of ABC on ex-dividend date was $60 per share $7.00 > $5.00 (10% x $50), so is an extraordinary dividend ($7.00 > $6.00 [10% x $60], so also greater when FMV on exdividend date is used) Jones Co.’s basis in the 1,000 ABC shares is reduced by the $4,900 DRD; so on subsequent sale its basis is $45,100 Chapter 14, Exhibit 28 52 of 57 Executive Compensation n n Compensation package must be reasonable in amount Code Sec. 162(m) also limits deductibility of executive compensation of publicly-traded corporations to $1,000,000 u Restriction applies to the corporation’s five highestpaid executives u Amount > $1,000,000 not deductible unless it is based on a performance-based compensation plan Chapter 14, Exhibit 29 53 of 57 Domestic Production Activities Deduction n n n Deduction is available to a wide-range of businesses Does not require exporting or any other activity outside United States Property must be manufactured, produced, grown or extracted in whole or in significant part in United States u Significant part means a firm would qualify if its direct labor and overhead costs incurred to manufacture or produce product are ≤ 20% of product’s total cost Chapter 14, Exhibit 30a 54 of 57 Domestic Production Activities Deduction n Deduction equals some percent x lesser of: (1) taxable income (before this deduction) for taxable year or (2) qualified production activities income for taxable year Percent is 9% for tax years after 2009 Deduction cannot exceed 50 percent of firm’s W-2 wages for taxable year that are allocable to qualified production activities Maximum tax savings in dollars equals the appropriate percent x taxable income x the firm’s marginal tax rate u Deduction effectively reduces the rate by an amount equal to the firm’s marginal tax rate x the appropriate percent u n n Chapter 14, Exhibit 30b 55 of 57 Domestic Production Activities Deduction Example INC Co.’s taxable income in 2011 is $6,000,000 before the domestic production activities deduction Qualified domestic production activities’ income is $4,800,000 W-2 wages allocable to domestic production activities are $2,700,000 What is INC Co.’s domestic production activities deduction? How much tax savings (and cash inflow) did the deduction produce? Chapter 14, Exhibit 31a 56 of 57 Domestic Production Activities Deduction Example Domestic production activities deduction is $432,000: 9% x lesser of (1) $6,000,000 or (2) $4,800,000 = $432,000 Cannot exceed 50% x $2,700,000 = $1,350,000 Tax savings (and cash inflow) from the deduction: $146,880 INC Co.’s tax rate is a flat 34% 34% x 432,000 = $146,880 Chapter 14, Exhibit 31b 57 of 57 ...
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This note was uploaded on 03/26/2012 for the course ACCT 553 taught by Professor Seda during the Spring '10 term at Keller Graduate School of Management.

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