| Term | Definition |
|---|
| S Corporation | Regular corporation with 1 to 100 shareholders that receive pass-through net income or losses, not subject to corporate tax rates, profits are taxed at individual rates on the shareholder's 1040, if company decides to keep profits as operating capital, then the shareholders are still taxed as receiving |
| Eligibility requirements for S Corporation | domestic corporation, no more than 100 shareholders, shareholders are individuals, estates, exempt orgs., and trusts, no nonresident alien shareholders, only one class of stock |
| C Corporation | Regular corporation that is taxed separately as a business entity, may choose to distribute profits or keep as operating capital, dividends paid to shareholders are taxed twice (once on corporate return on once on individual return) |
| Organizations taxed as corporations | insurance companies, business trusts, associations, and joint stock companies |
| Gross Income considerations | Corporation must include 100% of dividends received from other corporations, no gain or loss is recognized on the sale or acquisition of the corp's own stock, distributing appreciated property to its shareholders will be taxed on appreciation |
| Deductions from gross income | Same as individuals however no deduction is allowed for capital losses in excess of capital gains, capital losses are carried over= 3 years back and 5 years forward |
| Special deductions for corporations | Charitable contributions = up to 10% of taxable income before special deductions and capital loss or net operating loss carrybacks and excess may be carried forward 5 years and accrual based taxpayers may accrue up to 2 and a half months after close of tax year; Dividends received deductions = deduct a percentage of dividends received from taxable domestic corporations, less than 20% ownership = 70%, 20-80% ownership = 80%, 80% or more = 100%, limited to 70 or 80% of taxable income too, 80% deduction is calculated first |
| Tax rates for corporations | Income 0-$50,000 = 15%, 50,000-75,000 = 25%, 75,000- 10,000,000 = 34%, over $10,000,000 =35% |
| Tax rate for qualified personal service corps | A flat rate of 35% on all taxable income |
| Schedule M-1 | Reconciles the difference between taxable income and accounting income, with differences arising in depreciation, life insurance premiums and proceeds, tax-exempt income, expenses of tax-exempt income, capital losses, goodwill and federal income taxes |
| Alternative minimum tax | Computes at a rate of 20% on the alternative minimum taxable income, excess is added to company's tax liability, small corporations are exempt form AMT, gross receipts of $7.5 mill or less in last 3 years |
| Adjusted current earnings add items | tax-exempt income, seventy and eighty percent dividends received deductions, key employee insurance proceeds, deferred gain on installment sales, net income buildup on life insurance contracts |
| Adjusted current earnings deduct items | federal income, capital losses, disallowed travel and entertainment expenses, fines and penalties, excess charitable contribution |
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