Blond Corporation also claims a dividends received deduction of 70000 because a

Blond corporation also claims a dividends received

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general rule. Blond Corporation also claims a dividends received deduction of $70,000 because a net operating loss results when the Step 1 amount ($70,000) is subtracted from 100% of taxable income before DRD ($50,000). Cherry Corporation, however, is subject to the taxable income limitation and is allowed only $63,000 as a dividends received deduction.
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55. a. For 2014, the deduction for organizational expenditures is $5,422 {$5,000 (amount that can be immediately expensed) + [($43,000 – $5,000) ÷ 180 months 2 months]}. Except for the expenses related to the printing and sale of the stock certificates, all other expenses qualify for the § 248 amortization election. Thus, organizational expenditures total $43,000 ($21,000 + $3,000 + $19,000). To qualify for the election, the expenditure must be incurred before the end of the taxable year in which the corporation begins business. Since the legal fees were incurred in 2014, the $19,000 qualifies as organizational expenditures. b. Organizational expenditures now total $52,000 ($21,000 + $3,000 + $28,000). Since organizational expenditures exceed $50,000, the $5,000 first-year expensing limit is reduced to $3,000 [$5,000 – ($52,000 – $50,000)]. Thus, the 2014 deduction for organizational expenditures is $3,544 {$3,000 (amount that can be immediately expensed) + [($52,000 – $3,000) ÷ 180 months 2 months]}. 56. All $41,500 of the expenditures are startup expenditures. Egret can elect under § 195 to currently write off the first $5,000 and to amortize the remaining amount of such expenditures over a 180- month period beginning with the month in which it begins business (i.e., July 1, 2014). Thus, Egret’s deduction in 2014 for startup expenditures is $6,217 {$5,000 + $1,217 [($41,500 – $5,000) ÷ 180 months 6 months]}. Egret makes the § 195 election simply by claiming the deduction on its 2014 tax return. (If Egret decides to forgo the § 195 election, the $41,500 must be capitalized and is deductible only when the corporation ceases to do business and liquidates.) 57. Purple Corporation: Tax on—$65,000 Tax on $50,000 × 15% $ 7,500 Tax on $15,000 × 25% 3,750 Total tax $ 11,250 Azul Corporation: Tax on—$290,000 Tax on $100,000 $ 22,250 Tax on $190,000 × 39% 74,100 Total tax $ 96,350 Pink Corporation: Tax on—$12,350,000 Tax on $10 million $3,400,000 Tax on $2,350,000 × 35% 822,500 Total tax $4,222,500 Turquoise Corporation: Tax on $19,000,000 × 35% $6,650,000 Teal Corporation (a personal sevice corporation): Tax on $130,000 × 35% $ 45,500 58. Since Red and White are members of a controlled group of corporations, and since they did not consent to an apportionment plan, the marginal tax brackets are apportioned equally to the two entities. As such, Red Corporation’s income tax liability is $42,325 [($25,000 × 15%) + ($12,500 × 25%) + ($12,500 × 34%) + ($80,000 × 39%)], and White Corporation’s income tax liability is $69,625 [($25,000 × 15%) + ($12,500 × 25%) + ($12,500 × 34%) + ($150,000 × 39%)]. (Note that the combined tax liability of $111,950 for the two corporations is equal to the tax liability
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they would have incurred if they were taxed as one corporation with their combined taxable income of $330,000.) 59. Grouse, a large corporation, may use the prior year’s tax liability exception only for purposes of its first estimated tax payment for 2014. Any shortfall from not using the current year’s (2014) tax liability for the first installment must be paid in conjunction with the second installment payment.
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  • Taxation in the United States

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