Professional Documents
Culture Documents
INCOME TAX
CHAPTER 3
• Corporate elections
• Computing corporation’s taxable income
• Computing a corporation’s income tax
liability
• Accrual
• GAAP: generally required for C corps
• Cash
• Qualified PSC, or C corp w/ gross receipts <
$5M
• Inventories cannot be significant
• If inventories significant, must use accrual method for
sales, COGS, inventories, accts. rec., & accts. pay. (the
hybrid method)
• Family farm w/ gross receipts < $25M
• Non-organizational
• Ordinary and necessary expenses
• Paid or incurred BEFORE the actual start of
business operations
• Timing of deduction
• Deducted in the year paid
• Accrual basis corps may elect to include
payment made w/in 2-1/2 months following
the end of tax year
• Board of directors must have authorized
contribution during year it was accrued
• Must meet substantiation requirements to
deduct contribution
• Donated money
• Deduction equals amount donated
• Non-cash property
• Amount USUALLY equal to FMV of property
donated
• Ordinary income property
• Deduction limited to FMV less Ord Inc or STCG that
would have been recognized if property were sold
(includes recapture)
• Dividends-received deduction
• Net operating losses
• Sequencing of the deduction calculations
• No deduction is allowed if :
• Paying corp is a foreign corp
• Stock purchased w/borrowed money
• Stock of paying corp held for < 46 days
• Results in a permanent difference
• Affects effective tax rate, but not deferred taxes
• General rules
• Regular income tax formula
• Personal service companies
Gross Income
- Deductions and Losses
- Special Deductions
=Taxable Income
xAppropriate Rate (or rates)
=Regular Tax Liability before credits
• 50%-80% definition
• Five or fewer individuals, trusts or estates own:
• At least 80% of voting power or at least 80% of value
of stock of two or more corporations AND
• > 50% of the voting power or value is held by identical
owners (common ownership)
• 50%-only definition is 2nd test above