chapter 16 corporations
DESCRIPTION
Chapter 16 Corporations. Intro, Operating Rules, Related Corps. Business Forms (Tax Returns OH). Sole Prop P’ship Trusts & Estates S Corps C Corps. Sole Proprietorship. Schedule C, Form 1040 Tax 1 Chapters 2,5,7 especially. Partnerships, LLC’s. Form 1065 Schedule K-1 - PowerPoint PPT PresentationTRANSCRIPT
Chapter 16 Corporations
Intro, Operating Rules, Related Corps
Business Forms (Tax Returns OH)
Sole Prop P’ship Trusts & Estates S Corps C Corps
Sole Proprietorship
Schedule C, Form 1040
Tax 1 Chapters 2,5,7
especially
Partnerships, LLC’s
Form 1065 Schedule K-1
– Part share of inc/loss & sep md/exp
Chapter 20 Tax 2
Trusts & Estates
Form 1041
Chapter 27
Tax 3
S Corps
Distinguish S Corps– Chapter 21– generally not pay tax– similar to p’ship
Regular Corps - C Corps
Tax paying entities Form 1120 double tax Tax Rate Schedule Dividends
Reasonable Comp to Sh’s
deductible
amount & quality of work
unreas = constructive div
Choosing Corp Form - Tax Factors
Corp rates v. individual rates
character of div income v. flow through income
C Corp losses remain with corp
Choosing Corp Form - Non Tax Factors
Limited v. unlimited liability (sole prop, GP)
Raising capital through stock free transferability continuity of life centralized management
Limited Liability Companies(LLC’s)
1988 IRS ruling: p’ship for tax purps and limited liability Pre 97: IRC 7701(a)(3) characteristics
– majority: continuity of life, centralized management, limited liability, free transferability
LLC’s & other entitiesPost 96
Check the box regs elect p’ship or corp
status default Form 8832 Morongo tribe gambling
income = corporation dividend (not taxable to NR of CA)
Corporate Tax Calculation
Formula (OH), Tax Returns (OH) Similarities to individuals: GI Exclusions (Corps fewer) 1031, 1033 (not 121) related parties, wash sales
Corporate Tax Calculation(Continued)
1245, 1250 recapture, plus 291 Business deductions
– bad debts & interest: no nonbus Credits
Corp Tax - Dissimilaritiesto Indivs
Rates all deducs = bus; AGI not used no itemized & standard no personal & dependent exemptions casualty losses: no $100, no 10% AGI
Corp Tax - Certain Specific Provisions
Accounting periods & methods period usually choice - calendar or fiscal PSC & S Corp restricted PSC - cal yr unless exceps (chap 15) S Corps (chap 21)
Method
Cash usually not avail to Corp exceptions:
– S Corps, farming & timber, qualified PSC’s, Ave Ann GR 5m (3 prior yrs average)
inventory: accrual req’d for inventory related party & accrued deduction
Capital Gains & Losses
Capital Asset Definition L/T v. S/T Netting LTCG Rates
– individuals: number of rates– Corporations: reg. Tax rate
Losses– individuals: 3000, CF indefinitely– corporations: CB 3, CF 5, STCL
Depreciation Recapture
1245 - same 1250 - same plus 291 291 - 20% (1245 OI -
1250 OI)
Charitable Contributions
To qualified charitable org. year paid or, accrual basis - preceding year
– authorized by board
– paid by 15th day of 3d m of year
Charitable Contributions(Type of Property)
LTCG property
– limited to basis if tangible personal property put to unrelated use
OI property
– inventory STCG, recapture
– limited to basis usually
Charitable Contributions(Type of Property)
OI property - exception to basis rule (Corps)
add 50% of appreciation (limit: 2 x basis)
– inventory, related purp, and care of ill / needy / infants
– scientific property to colleges and certain scientific research orgs
Charitable Contributions(% Limit)
Limit = 10% TI TI w/o charitable contribution
w/o NOL CB (per 170(b)(2) v. 246 (b)(1)
w/o CL CB
w/o DRD CF 5 yrs, newest 1st
NOL’s
CB2, CF20 no C/L v. indivs no non bus
deduc. V. indivs include DRD
DRD (Corps only) alleviate triple tax: corp payor, corp payee, shareholder
Own
20%
20, 80%
80%
Deduc - %TI (domestic corp)
70%
80%
100%
DRD - TI
TI w/o NOL (CB or CO per 246(b)(1) v. 170(b)(2))w/o DRDw/o CL CB
% limit may not apply if no NOL– lesser of % x divs or % x TI– unless TI minus (% x divs) = NOL, then
use % x divs
ORG Expenses (Corps only)
IRC 248 Election to Amortize over 60 mos. Original return and extensions include legal, accounting, temp director’s
fees, org meetings, state incorp fees not expenses of selling stk or transferring
assets incurred before and year begin business
Corp Tax Rates & Calc
0 - 50,000 15%50 - 75,000 25%75 - 100,000 34%100 - 335,000 39%335,000 - 10m 34%10 - 15m 35%15 - 18,333,333 38%18,333,333 - 35%
PSC’s
Flat: highest individual rate substantially ee owned health, law, engineering, architecture,
accounting, actuarial science, performing arts, consulting
AMT
Similar to individuals
rate & exemptions different
ACE
Related Corps
Limit multiple corps (IRC 1561) special rules - inc tax sur tax exemption,
AEC (250 or/5 ok), AMT exemption (40k), 179
controlled group e.g., 1 surtax exemption (rates lower 35%)
equal allocation unless all members consent to unequal
Controlled Groups
P/S & B/S P/S = one or more chains of corps connec’d
thru a common parent
- voting or value
- 80% of total voting power of all classes
- 80% total value of all shares of all corps, except P, by 1 or more corps
B/S = 2 or more corps owned by 5 or fewer persons (indivs, ests, trusts)
and shareholder group meets– 80% total ownership– 50% common ownership
% of all classes in total or % of each class in each corp
to determine common ownership, count only identical ownership
Combined Group
Each corp member of either P/S or B/S
at least one P of P/S P also member of
B/S
Filing Requirements
TI or not - req’d to file until cease to do bus and no assets 1120 (or 1120A, 1120S 15th day of 3’d month Form 7004 - automatic ext. - 6 mos
Estimates
Unless $500 tax 100% TY, 100%
LY (lesser) Months due – 4, 6,
9, 12 penalty, exceptions
Reconciliation: BI to TI (M-1)
Schedule M-1 (OH) start net income per
books to TIb4NOL, DRD
Additions (M-1)
Fed inc tax net CL income rept’d for tax & not for books eg.,
prepaid income expenses deduc’d for bks & not for tax, eg.,
charitable 10%
Subtractions
Inc. rept’d on books & not for tax eg., tax exempt
exps deduc’d tax & not for books eg., charitable c/o
Reconciliation beg & end R/E (M-2)
schedule M-2 (OH) per books inc (from
M-1)
Planning - Corp v. Non Corp
Double tax & avoiding – debt/equity– unreas salary & rent
accum inc inside corp if 100,000 character of items losses locked up in corp liquidation - tax to corp & sh’s EE’s & benefits - group term life insur,
health insur, meals & lodging
Planning - Operating the Corp
Charitable contributions - authorized b4 yr end
Cap G&L– match L to G– watch c/o L (CB3, CF5)
NOL - elect to forego CB– consider postponed refund– consider higher future profits– consider higher future tax rates
DRD– time to create NOL will give bigger DRD
ORG exps
– adopt fiscal year to be sure exps incurred b4 yr end
SH - EE paym of Corp exps
– det corp policy on remb b4 beginning of each yr
Corporate ProvisionsEGTTRA `01 Change in tax rates Also for accumulated earnings tax and
personal holding company tax Rate for AET and PHC tax
– Highest tax rate for indiv t/p Effective: after `00