Dividends Received Deduction Is Computed After Charitable Deduction
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Dividends received deduction is computed after charitable deduction.Dividends not applied to personally (1:personal holding companies;2:personal service corporations;3:personally taxed(S corporations))General business credit: net income tax- greater of (25% of regular tax exceeds $25,000 or tentative minimum tax) carryback 1 forward 20Tax deductible(state income, city income, federal payroll)Lobbying expenditures (direct-type related to local government lobbying is deductilble.)Paying tax late: You will have to pay a failure-to-pay penalty of ½ of 1 percent (0.5 percent) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. This penalty does not apply during the automatic six-month extension of time to file period if you paid at least 90 percent of your actual tax liability on or before the original due date of your return and pay the balance when you file the return.Simulation:Widgets, INC.,which is not a large corporation, paid income tax in year 1 in the amount of $35,000. For Year2, their total income tax is $110,000. They made 4 timely estimated tax payments for Year2 in the amounts of $20,000 each. A timely extension was filed for the Year 2 Tax Return on March 13, Year3 and no additional money was sent with the return. The additional 30,000 tax owed was paid when the return was filed during the extension period on Mary 24, Year3. Assume that the interest rate is 1% per month or part of month that the payment is late.[pic 1]1.0/0This is not an electing large corporation. Therefore, they may use the 100% of prior year method for paying estimated taxes as long as the prior year was not zero. The prior year was 35,000. Because the estimated tax payments of $80,000 were at least 35,000, there will be no penalty for underpayment of estimated taxes.2:0/0The extension was filed timely and the return was filed during the extension period. It was not filed late, so there is no failure-to-file penalty.3: $30,000/ 450Although there is no penalty for underpayment of estimated taxes and an extension was timely filed, the final $30,000 was paid after the initial due date of the return. Extension filed are for the period to file and not to pay. Any payment made after the initial due date of the return is subject to the failure-to-pay penalty. There is an exception if 90% of the tax was paid on time and the remaining amount is paid by the extended due date, but that does not apply to the facts here. The penalty is half of a percent for each month or fraction of a month up to a maximum 25%. The payment on May 24 is 2 full months and part of a third month late. Therefore the penalty is 0.5% X3X30,000=4504:30,000/900All amounts paid after initial due date are subject to interest. The interest is 1 percent for each month or fraction of a month. The payment on May24 is 2 full months and part of a third month late. Therefore, the interest is 1%X 3 X 30,000=900Definition of Corporate Earnings and Profits:Unrealized losses (and unrealized gains) represent changes in value of securities held but not yet sold. These unrealized gains and losses are not recognized for tax purposes.Although similar in many respects and in concept, corporate earnings and profits are not exactly the same as retained earnings. Earnings and profits are calculated according to the rules of federal income taxation, and retained earnings are calculated according to GAAP. For example, while non-taxable dividends reduce retained earnings, they have no effect on EP.
The determination of EP is also critical to evaluating the ability of the corporation to pay dividends. Thus, any items that have not been reflected in the corporation’s taxable income but may have an impact on the corporation’s ability to pay dividends must be included in the calculation of EP.For purposes of E&P, a corporation will treat gain from an installment sale as if the installment method were not used. This means, the entire profit will enter E&P in the year of the sale. Therefore, gain on a prior year installment sale recognized in the current year must be subtracted from taxable income. (thus reducing E&P). This is because it is included in the current year’s taxable income but was already included in E&P in the original year of the sale.Section351: Section 351 is mandatory if a transaction satisfies the provision’s requirements. As explained in the following sections, the three requirements for nonrecognition of gain or loss under § 351 are that (1) property is transferred (2) in exchange for stock and (3) the property transferors are in control of the corporation after the exchange. Section 357(a) provides, however, that when the acquiring corporation assumes a liability in a § 351 transaction, the liability is not treated as boot received for gain recognition purposes (unless the liability is excess of NBV of all assets contributed). Nevertheless, liabilities assumed by the transferee corporation are treated as boot in determining the basis of the stock received by the shareholder. [pic 2]Earned income credit can only be claimed by individuals, not corporations.Shareholder:The taxable amount of a dividend to a shareholder from a corporations earnings and profits is the amount received in cash or the fair market value of the property received.Corporation: The general rule is the payment of a dividend does not create a taxable event, unless the distribution is appreciated property. When the distribution is appreciated property, the corporation recognizes gain as if the property were sold at a fair market value.No gain or loss is recognized by either the parent corporation or the subsidiary corporation when the parent, who owns at least 80% of the stock, liquidates its subsidiary.（receipt of property distributed in complete liquidation of a subsidiary.）The tax code defines an affiliated group as one in which there is a parent corporation that owns at least 80% of both the voting power and the value of the stock of another corporation and the affiliated group includes all other corporations in which 80% of both the voting power and the value of their stock is owned collectively by other members of the group.当a corporation distribute an asset to shareholder,并且was subject to a liability. the corporation recognizeds a gain as if it had sold the asset:The gain is=Amount realized(greater of FMV of asset of the amount of liability assumed by the shareholder) – Adjusted basis of property sold= Realized and recognzied gain.intercompany gain:The gain realized on the sale is an intercompany gain that is eliminated in consolidation.Therefore, the year 1 consolidated return gain is $0. In year2, when sly sells the land to an outside party, the full gain of $65,000 is recognized ($125,000-$6,000 original basis) on the consolidated return.