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    Deduct From Book Income: - B - T F Dul - .

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    Zeyad El-sayed
    This document discusses several key aspects of corporate taxation: 1) It explains how to reconcile book income and taxable income by adding back non-deductible expenses on tax returns and deducting items like tax-exempt interest that are reported on books but not tax returns. 2) It provides an example calculation showing how to determine a corporation's taxable income based on information from its financial statements. 3) It discusses how consolidated tax returns can be filed by affiliated corporations to eliminate intercompany dividends and defer gains on intercompany transactions.

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    Deduct From Book Income: - B - T F Dul - .

    Uploaded by

    Zeyad El-sayed
    16 views2 pages
    This document discusses several key aspects of corporate taxation: 1) It explains how to reconcile book income and taxable income by adding back non-deductible expenses on tax returns and deducting items like tax-exempt interest that are reported on books but not tax returns. 2) It provides an example calculation showing how to determine a corporation's taxable income based on information from its financial statements. 3) It discusses how consolidated tax returns can be filed by affiliated corporations to eliminate intercompany dividends and defer gains on intercompany transactions.

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    This document discusses several key aspects of corporate taxation: 1) It explains how to reconcile book income and taxable income by adding back non-deductible expenses on tax returns and deducting items like tax-exempt interest that are reported on books but not tax returns. 2) It provides an example calculation showing how to determine a corporation's taxable income based on information from its financial statements. 3) It discusses how consolidated tax returns can be filed by affiliated corporations to eliminate intercompany dividends and defer gains on intercompany transactions.

    Copyright:

    © All Rights Reserved
    Download as RTF, PDF, TXT or read online from Scribd
    Download as rtf, pdf, or txt
    16 views2 pages

    Deduct From Book Income: - B - T F Dul - .

    Uploaded by

    Zeyad El-sayed
    This document discusses several key aspects of corporate taxation: 1) It explains how to reconcile book income and taxable income by adding back non-deductible expenses on tax returns and deducting items like tax-exempt interest that are reported on books but not tax returns. 2) It provides an example calculation showing how to determine a corporation's taxable income based on information from its financial statements. 3) It discusses how consolidated tax returns can be filed by affiliated corporations to eliminate intercompany dividends and defer gains on intercompany transactions.

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    572 MODULE 36 TAXES: CORPORATE

    (2) Deduct from book income


    (a) Income reported on the books but not on the tax return (e.g., tax-exempt interest, life in-
    surance proceeds)
    (b) Expenses deducted on the tax return but not on the books (e.g., MACRS depreciation
    above straight-line, charitable contribution carryover)
    (c) The dividends received deduction
    2. When going from taxable income to book income, the above adjustments would be reversed.
    3. Schedule M-I of Form 1120 provides a reconciliation of income per books with taxable income
    before the NOL and DRD. There are two types of Schedule M-I items:
    (1) Permanent differences (e.g., tax-exempt interest)
    (2) Temporary differences-items reflected in different periods (e.g., accelerated depreciation on
    tax return and straight-line' on books)
    EXAMPLE: A corporation discloses that it had net income after taxes of $36,000 per books. Included in the
    computation were deductions for charitable contributions of $10,000, a net capital loss of $5,000, and federal
    income taxes paid of $9,000. What is the corporation's Tl?
    Net income per books after tax $36,000
    Nondeductible net capital loss -t-" 5,000
    Federal income tax expense + 9,000
    Charitable contributions + I O. 000
    Taxable income before CC $60;000
    CC (limited to 10% x 60,000) - 6.000
    Taxable income $54000
    4. Schedule M-2 of Form 1120 analyzes changes in a corporation's Unappropriated Retained Earn-
    ings per books between the beginning and end of the year.
    Balance at beginning of year
    Add: Net income per books
    Other
    increases
    Less: Dividends to shareholders
    Other decreases (e.g., addition to reserve for contingencies)
    Balance at end of year
    5. Affiliated and Controlled Corporations
    6. An affiliated group is a parent-subsidiary chain of corporations in which at least 80% of the
    com-
    bined voting power and total value of all stock (except nonvoting preferred) are owned by includible
    corporations. .
    7. They may elect to file a consolidated return. Election is binding on all future returns.
    8. If affiliated corporations file a consolidated return, intercompany dividends are eliminated in the
    consolidation process. If separate tax returns are filed, dividends from affiliated corporations are
    eligible for a 100% dividends received deduction.
    9. Possible advantages of a consolidated return include the deferral of gain on intercompany transac-
    tions and offsetting operating/capital losses of one corporation against the profits/capital gains of
    another.
    EXAMPLE:, P Corp. owns 80% of the stock of A Corp., 40% of the stock of B Corp., and 45% of the stock ofC
    Corp. A Corp. owns 40% of the stock of B Corp. A consolidated tax return could be filed by P, A, and B.
    EXAMPLE: Parent and Subsidiary file consolidated tax returns using a calendar year. During 2008, Subsidiary
    paid a $10,000 dividend to Parent. Also during 2008, Subsidiary sold land with a basis of$20,000 to Parentfor its
    FMV of $50,000. During 2009, Parent sold the land to an unrelated taxpayer for $55,000.
    The intercompany dividend is eliminated in the consolidation process and is excluded from consolidated tax-
    able income. Additionally, Subsidiary's $30,000 of gain from the sale of land to Parent is deferred for 2008. The
    $30,000 will be included in consolidated taxable incomefor 2009 when Parent reports $5,000 of income from the
    sale of that land to the unrelated taxpayer.

    10. A controlled group of corporations is limited to an aggregate of $75,000 of ta~able income


    taxed at
    less than 35%, one $250,000 accumulated earnings credit, one Sec. 179 expense election, and one
    $40,000 AMT exemption. There are three basic types of controlled groups.

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