Corporate Income Tax Deductions - CPA Regulation (REG)
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The corporate dividends received deduction:
The corporate dividends received deduction:
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The corporate DRD is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period of more than 45 days.
The corporate DRD is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period of more than 45 days.
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Canada Co, a C Corp, owns 15% of Apple Corp. Apple paid a $3,000 cash dividend to Canada. What is Canada’s DRD?
Canada Co, a C Corp, owns 15% of Apple Corp. Apple paid a $3,000 cash dividend to Canada. What is Canada’s DRD?
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Per the DRD rates, with a 15% ownership in Apple, the percentage used for the deduction is 50%. 50% * $3,000 = $1,500.
Per the DRD rates, with a 15% ownership in Apple, the percentage used for the deduction is 50%. 50% * $3,000 = $1,500.
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The Dividends Received Deduction applies to:
The Dividends Received Deduction applies to:
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Of the following choices, only a C Corporation in the United States would be applicable for the DRD under current US tax law.
Of the following choices, only a C Corporation in the United States would be applicable for the DRD under current US tax law.
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Which of the following types of organizations is considered a public charity for purposes of the charitable contribution deduction?
Which of the following types of organizations is considered a public charity for purposes of the charitable contribution deduction?
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Under the section 170(c) of the Internal Revenue Code, the charitable contribution deduction only applies to specific organizations. Among these include organizations such as government owned possession (if made exclusively for public purposes), a foundation organized exclusively for the public good, religious organizations, and nonprofit cemetery companies. Chambers of Commerce are considered political organizations and are disallowed, and supplemental unemployment benefits are not IRS designated charities.
Under the section 170(c) of the Internal Revenue Code, the charitable contribution deduction only applies to specific organizations. Among these include organizations such as government owned possession (if made exclusively for public purposes), a foundation organized exclusively for the public good, religious organizations, and nonprofit cemetery companies. Chambers of Commerce are considered political organizations and are disallowed, and supplemental unemployment benefits are not IRS designated charities.
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Which of the following transactions would not qualify as a charitable contribution by a corporation in order to receive the charitable contribution deduction?
Which of the following transactions would not qualify as a charitable contribution by a corporation in order to receive the charitable contribution deduction?
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Donations to political parties, whether by a corporation or an individual, never qualify for charitable contributions. Donations made to nonprofits (which includes universities and colleges) as well as to religious groups qualify for the charitable contribution deduction.
Donations to political parties, whether by a corporation or an individual, never qualify for charitable contributions. Donations made to nonprofits (which includes universities and colleges) as well as to religious groups qualify for the charitable contribution deduction.
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For year 19, Fallon Corp., an accrual basis calendar-year C corporation, had an $8,000 unexpired charitable contribution carryover from year 18. Fallon’s Year 19 taxable income before the deduction for charitable contributions was $200,000. On December 15, year 19, Fallon’s board of directors authorized a $15,000 cash contribution to a qualified charity, which was made on January 8, Year 20. What is the maximum allowable deduction that Fallon may take as a charitable contribution on its Year 19 tax return?
For year 19, Fallon Corp., an accrual basis calendar-year C corporation, had an $8,000 unexpired charitable contribution carryover from year 18. Fallon’s Year 19 taxable income before the deduction for charitable contributions was $200,000. On December 15, year 19, Fallon’s board of directors authorized a $15,000 cash contribution to a qualified charity, which was made on January 8, Year 20. What is the maximum allowable deduction that Fallon may take as a charitable contribution on its Year 19 tax return?
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C corporations may deduct up to 10% of their gross income before deductions, so Fallon has a maximum of $20,000 it may deduct. Fallon’s board authorized a transfer of $15,000 cash prior to the end of the tax year, and companies are allowed to deduct accrued contributions if paid within 3 ½ months after year-end, meaning they may take the entire $15,000. Fallon also had an $8,000 carryover from the prior year, and corporations may carryover excess charitable contributions for up to five years after the contribution was made. As a result, Fallon can also take an additional $5,000 from the carryover amount and apply that to the Year 19 tax year, for the maximum deduction of $20,000.
C corporations may deduct up to 10% of their gross income before deductions, so Fallon has a maximum of $20,000 it may deduct. Fallon’s board authorized a transfer of $15,000 cash prior to the end of the tax year, and companies are allowed to deduct accrued contributions if paid within 3 ½ months after year-end, meaning they may take the entire $15,000. Fallon also had an $8,000 carryover from the prior year, and corporations may carryover excess charitable contributions for up to five years after the contribution was made. As a result, Fallon can also take an additional $5,000 from the carryover amount and apply that to the Year 19 tax year, for the maximum deduction of $20,000.
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A corporation deduction for charitable contributions that exceed the current limit for deduction in one year can be carried back __ years and forward __ years.
A corporation deduction for charitable contributions that exceed the current limit for deduction in one year can be carried back __ years and forward __ years.
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For the corporate charitable deduction, there is no carryback and only a 5 year carry forward period.
For the corporate charitable deduction, there is no carryback and only a 5 year carry forward period.
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In the case of a corporation that is not a financial institution, which of the following statements is correct with regard to the deduction for bad debts?
In the case of a corporation that is not a financial institution, which of the following statements is correct with regard to the deduction for bad debts?
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Accrual-basis taxpayers (which includes corporations) are required to use the specific charge-off (aka direct charge-off) method for tax purposes. This does not preclude a corporation from using the reserve method for financial reporting purposes, as required.
Accrual-basis taxpayers (which includes corporations) are required to use the specific charge-off (aka direct charge-off) method for tax purposes. This does not preclude a corporation from using the reserve method for financial reporting purposes, as required.
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What is the maximum amount of capital losses in excess of capital gains that a C corporation may deduct in a year?
What is the maximum amount of capital losses in excess of capital gains that a C corporation may deduct in a year?
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For C corporations, capital losses may only be deducted to the extent of capital gains in a given year. Excess capital losses may, however, be carried back three years or forward five (again, only to the extent of capital gains in those years).
For C corporations, capital losses may only be deducted to the extent of capital gains in a given year. Excess capital losses may, however, be carried back three years or forward five (again, only to the extent of capital gains in those years).
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Funnie, Inc. manufactures consumer products and sells them to distributors. Funnie advertises its products to increase sales and enhance the value of its trade name. What is the appropriate treatment for the advertising costs?
Funnie, Inc. manufactures consumer products and sells them to distributors. Funnie advertises its products to increase sales and enhance the value of its trade name. What is the appropriate treatment for the advertising costs?
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Advertising expenses are treated as those incurred in the normal course of business, and for tax purposes are expensed in the period the costs are incurred. There is no amortization of these costs.
Advertising expenses are treated as those incurred in the normal course of business, and for tax purposes are expensed in the period the costs are incurred. There is no amortization of these costs.
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ABC Corp, a calendar-year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant and the reimbursement is not treated as wages subject to withholdings. What percentage of meal expenses may ABC deduct?
ABC Corp, a calendar-year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant and the reimbursement is not treated as wages subject to withholdings. What percentage of meal expenses may ABC deduct?
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Only 50% of meal expenses are deductible.
Only 50% of meal expenses are deductible.
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A corporation’s penalty for underpaying federal estimated taxes is:
A corporation’s penalty for underpaying federal estimated taxes is:
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The penalty for underpayment of federal estimated taxes is not deductible.
The penalty for underpayment of federal estimated taxes is not deductible.
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ABC Corp, a calendar year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant and the reimbursement is not treated as wages subject to withholdings. What percentage of meal expenses may ABC deduct?
ABC Corp, a calendar year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant and the reimbursement is not treated as wages subject to withholdings. What percentage of meal expenses may ABC deduct?
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Only 50% of meal expenses are deductible.
Only 50% of meal expenses are deductible.
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A corporation’s penalty for underpaying federal estimated taxes is:
A corporation’s penalty for underpaying federal estimated taxes is:
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The penalty for underpayment of federal estimated taxes is not deductible.
The penalty for underpayment of federal estimated taxes is not deductible.
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For a C Corporation, are able to be expensed or amortized during the organizational process.
For a C Corporation, are able to be expensed or amortized during the organizational process.
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Stock sale costs cannot be expensed or amortized during the organizational period, only legal fees necessary to form the company.
Stock sale costs cannot be expensed or amortized during the organizational period, only legal fees necessary to form the company.
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The corporate dividends-received deduction:
The corporate dividends-received deduction:
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The dividends-received deduction (DRD) depends on the percentage of the investor’s share of the investee. To take advantage of the DRD, investors must hold the investee’s stock for a specific period prior to the ex-dividend date. The DRD is only available to domestic C corporations, and is limited to the investor’s taxable income for the period.
The dividends-received deduction (DRD) depends on the percentage of the investor’s share of the investee. To take advantage of the DRD, investors must hold the investee’s stock for a specific period prior to the ex-dividend date. The DRD is only available to domestic C corporations, and is limited to the investor’s taxable income for the period.
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Rohr, a C corporation, owns 18% of Alda Corporation. Alda paid a $3,000 cash dividend to Rohr. What is the amount of Rorh’s dividends-received deduction?
Rohr, a C corporation, owns 18% of Alda Corporation. Alda paid a $3,000 cash dividend to Rohr. What is the amount of Rorh’s dividends-received deduction?
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For the dividends-received deduction (DRD), less than 20% ownership results in a 50% deduction, so Rohr gets a DRD of $1,500 (50% of the $3,000 dividend received).
For the dividends-received deduction (DRD), less than 20% ownership results in a 50% deduction, so Rohr gets a DRD of $1,500 (50% of the $3,000 dividend received).
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In Year 2, Buy Corp., an accrual basis calendar year C corporation, received $100,000 in dividend income from the common stock that it held in an unrelated domestic corporation. The stock was not debt financed and was held for over a year. Buy recorded the following information for Year 2:
- Loss from Buy’s operations: (10,000)
- Dividends received: 100,000
- Taxable income (before dividends-received deduction): 90,000
Buy’s dividends-received deduction on its Year 2 tax return was:
In Year 2, Buy Corp., an accrual basis calendar year C corporation, received $100,000 in dividend income from the common stock that it held in an unrelated domestic corporation. The stock was not debt financed and was held for over a year. Buy recorded the following information for Year 2:
- Loss from Buy’s operations: (10,000)
- Dividends received: 100,000
- Taxable income (before dividends-received deduction): 90,000
Buy’s dividends-received deduction on its Year 2 tax return was:
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Generally, the minimum dividends-received deduction (DRD) is 50%, which would mean in this case a $100,000 would result in a $50,000 DRD. However, the DRD is limited to the lesser of the DRD % applied to dividends received or the DRD % applied to taxable income without consideration of the DRD. Since we are told the taxable income is $90,000, the maximum DRD at 50% would be $45,000. (Had the company been eligible for a 65% DRD, the DRD could only have been $58,500, which was not an option.)
Generally, the minimum dividends-received deduction (DRD) is 50%, which would mean in this case a $100,000 would result in a $50,000 DRD. However, the DRD is limited to the lesser of the DRD % applied to dividends received or the DRD % applied to taxable income without consideration of the DRD. Since we are told the taxable income is $90,000, the maximum DRD at 50% would be $45,000. (Had the company been eligible for a 65% DRD, the DRD could only have been $58,500, which was not an option.)
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A corporation’s penalty for underpaying federal estimated taxes is:
A corporation’s penalty for underpaying federal estimated taxes is:
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The penalty for underpayment of federal estimated taxes is not deductible.
The penalty for underpayment of federal estimated taxes is not deductible.
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For a C Corporation, are able to be expensed or amortized during the organizational process.
For a C Corporation, are able to be expensed or amortized during the organizational process.
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Stock sale costs cannot be expensed or amortized during the organizational period, only legal fees necessary to form the company.
Stock sale costs cannot be expensed or amortized during the organizational period, only legal fees necessary to form the company.
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