Corporate taxable income Plus/minus AMT adjustments Plus: Preference items Equals: AMT income Less: Exemption Equals: AMTI base Times: AMT rate Equals: Gross AMT
9 - 2 Calculating AMT Gross AMT Less: Regular corporate tax Equals: Alternative minimum tax Less: Credits Equals: Net AMT Corporation only pays AMT if gross AMT is greater than its regular corporate income tax
9 - 2 AMT Adjustments Timing differences 1) Difference between regular tax depreciation and AMT depreciation 2) Difference between gain reported for AMT by percentage-of-completion method over gain reported using completed contract method for regular tax 3) 75% of difference between adjusted current earnings (ACE) and gross AMTI before this adjustment
9 - 2 AMT $40,000 Exemption Phased out at rate of $1 for every $4 AMTI exceeds $150,000 (completely phased out at $310,000 AMTI) Credit – equal to AMT paid in prior years Carried forward indefinitely but can only offset regular tax in excess of AMT
9 - 2 Filing and Payment Form 1120 is due on 15 th day of 3 rd month following close of tax year File Form 7004 for 6-month automatic extension Quarterly estimated tax payments due on 15 th day of 4 th , 6 th , 9 th , and 12 th months of tax year Underpayment penalty assessed if liability $500 more than estimated payments If taxable income less than $1 million in each of 3 preceding years, no penalty if each estimated payment equals 25% of prior year’s tax liability
9 - 2 Consolidated Returns Affiliated group – parent corporation must directly own 80% or more of subsidiary’s stock (by voting rights and value) Can include more than 2 corporations if 80% of stock owned by one or more corporations that are part of affiliated group Consolidated return - reports combined results of operations of all corporations in the group All subsidiaries must consent and must have or change to same tax year as parent
9 - 2 Consolidated Net Income Affiliated corporations viewed as divisions of parent requiring modification for deferred intercompany transactions and intercompany dividends Items subject to limitations and netting are determined on a consolidated basis 1) Capital gains and losses 2) Section 1231 gains and losses 3) Charitable contribution deductions
9 - 2 Consolidated Tax Returns Advantages 1) Intercompany dividends are eliminated from taxation 2) Gains on intercompany transactions are eliminated 3) Deductions subject to limitation may be allowed when consolidated 4) Losses of one corporation can offset gains of another 5) Income from one corporation can offset losses of another 6) Limitations based on consolidated income permit greater use of deductions or credits
9 - 3 Dividend Distributions Dividend – a distribution of corporate earnings and profits (E&P) that is taxable income to shareholders but not deductible by the corporation Individual investors taxed on dividend income at same rates as long-term capital gains
9 - 3 Earnings and Profits E&P measures how much a corporation can distribute as a dividend and leave contributed capital intact Dividends in excess of E&P Tax-free return of capital to extent of shareholder’s stock basis (reduce basis) If shareholder’s basis is reduced to zero, excess distribution is capital gain
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- Spring '12
- Dividend, Taxation in the United States, Corporation