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- Deferring gain or loss upon incorporation
- - must transfer property
- - must recieve stock
- - must be in control of the corp immediately after the exchange (80%)
Pro's & Con's to forming a C Corp
Pros: Fiscal year end, (somewhat manipulate tax)
Cons: pay double tax
How to deal with boot?
Gain realized vs Gain recognized: Choose the lessor of the two
How much property needs to be contributed with services to be considered for Sec 351
- Original asset basis
- + gain recognized
- - Recognized loss
- - boot received
- - liabilities given up
If liabilities exceed the basis, what is the amount of the gain or loss?
Most devastating rule applying to PSC's?
If you are a corporation and make a profit, every dollar is taxed at 35%
When are corporate tax returns due?
Two months and 15 days after your year end
Which corporations are not allowed to have a fiscal year end?
How are capital gains treated in corporations?
- - there is no special tax rate, but you still need to keep track of them
- - if you have capital losses, you only get to deduct to the extent of gains
- - you can carry back capital losses 3 years and forward 5 years
Section 1250 Real Estate
- Take depreciation and multiply by 20%. You need to recapture 20% of the depreciation as ordinary income.
- -Anything above the 20% is capital gain
- - you can offset your capital losses against capital gain
Section 1245 Equipment
Recapture 100% of equipment as ordinary income
Organizational expenses are?
-intangible assets amortized over 15 years
Organizational costs include?
- formation costs
- anything dealing with the process of setting up a corporation
Organizational costs do not include?
- cost to issue stock
- cost to sell stock
- printing stock
How much of both organizational costs and start-up costs can be immediately expensed?
What are start up costs?
- Ordinary and necessary business expenses prior to opening
- - 10% of gross income limitation
- - Needs to be for ill, needy, infants, or scientific research
- - tax deduction is going to be cost plus one half of your gain. (as long it is more than your cost doubled)
Accrued Expenses need to be paid when?
- Within 2 1/2 months after the fiscal year end
- - for a controlling owner (more than 50% of the corp) the deduction and income need to happen in the same year.
US Production Deduction
- - 9% deduction of the lessor of your US production income, or taxable income
- 1. look at how much profit is generated from US products
- 2. Must have a total taxable income. It the total profit is lower than the US profit, you must use the lower amount.
- 3. Limitation: limited to 50% US wages
- 4. Report all income and subtract all expenses plus 9% deduction
- 5. Farmers are eligable
- -equal to taxable loss
- -back 2 years and forward 20 years
- -If you carry back you must go back 2 years
Dividend Received Deduction
- - If you own 0-20% ownership you receive a 70% deduction
- - 20-80% in stock you get an 80% deduction
- - More than 80% gets a 100% deduction
What is the Dividend Received Deduction limited to?
- - the lessor of taxable income or dividend income
- -if you end up with a loss after deducting the higher number than you are allowed to use the higher number.
- - First 50,000 = 15%
- - Next 25,000 = 25%
- - From 75-10Mil = 34%
- At 100,000 of taxable income, you are charged a 5% surtax until all the benefits related to the lower tax brackets are gone.
- -Once you hit 335,000 you are in a flat tax of 34%
- 80% common ownership or more
- - you only get one 50,000 at 15% and one 25,000 at 25% no matter how many corporations you own
- 51% ownership or more
- - If the corp pays you a bonus, you need to receive income same period as they deduct it
- - losses between related parties is not allowed
- - If property is ordinary income in hand of either property neither one gets capital gain treatment
If you file an extended deadline to file tax what do you need to do?
- - still need to estimate the tax you are going to owe. If you had 0 tax due last year than you default to 90% of this years tax
- - If you are a large corp (5Mil) you pay 90% of current years tax
- Not taxable
- Not deductible
- - Property is distributed at FMV
- - When you sell an asset the character of the gain is always related to the asset you are selling.
- - Corp must pay tax on the difference between what they paid and the FMV
Related Party Liquidation
- - if you own 80% of corp then it is not liquidation just a merger
- - Property is transferred at basis. No gain or loss
- - If you buy stock from the liquidation at a lower price than their FMV you have a gain but don't report it. The new assets just increase your equity.