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Corporate Tax

In: Business and Management

Submitted By jms2384
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LO1 - Corporate Taxable Income Formula * Corps. compute gross income as do other types of business entities * Are allowed to deduct ordinary and necessary business expenditures * Don’t itemize deductions (No need for standard deductions) * No personal or dependency exemptions * Exist to generate income through business activities * Nearly all corporate expenditures create either current or future tax deductions * Corporate taxable income formula is relatively straight forward * Accounting Periods and Methods * Corporations measure their taxable income over a tax year and that their tax year must be the same as their financial accounting year * Generally elect their tax year when they file their first tax return * Timing when corps. recognize income and deductions depends on their accounting method * For tax purposes corps. have some flexibility in choosing methods of accounting for individual items or transactions. However, they are generally required to use the accrual method * Corps. with average gross receipts of $5 million or less over the three prior tax years (or a shorter period for new corporations) may use the cash method.
LO2 – Computing Corporate Regular Taxable Income * Most corps starts with book income and then make adjustments for book-tax differences to reconcile to the tax numbers. * Privately held corps may use tax accounting rules for book purposes. (No adjustments required) * Book-Tax Differences * Unfavorable book-tax difference – any book-tax difference that requires an add back to book income to compute taxable income. Requires and adjustment that increases taxable income (and taxes payable) relative to book income. * Favorable book-tax difference – Any book-tax difference that requires corporations to subtract the difference from book income in computing taxable...

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