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Week 5 Homework Solutions
Chapter 14
1. Please explain how Charitable Contributions come into play in determining "Corporate" taxable income. (5 pts)
The maximum amount deductible by a corporation for charitable contributions is 10 percent of its adjusted taxable income. The deduction is limited to the lesser of 10 percent of adjusted taxable income or the sum of the initial measures of all property donated during the tax year. Adjusted taxable income is equal to taxable income without regard to the charitable contribution deduction, the dividends-received deduction, any net operating loss carryback, any capital loss carryback, and the domestic production activities deduction. If the charitable contributions for the tax year exceed the 10 percent limitation, the excess can be carried forward for five years. Carryovers are used on a first-in, first-out basis after first deducting the current year’s contributions.

2. What happens to a loss on the Corporate Tax Return (Form 1120)? Does it pass through to the shareholders? Is it available for future or past periods? Please explain in detail. (5 pts.)
If a company has a loss they can claim relief from Corporation Tax by offsetting the loss against other gains or profits from the business in the same accounting period. They can also carry the loss back or it will be carried forward to another accounting period. Corporations can elect to pass loss to shareholders.

3. Please describe the purpose of Sch3edules M-1 and M-3. When is a Schedule M-3 required in lieu of a Schedule M-1. (5 pts.)
Schedule M-1 is for Reconciliation of Income (Loss) per Books With Income per Return)
Schedule M-2 is for Analysis of Unappropriated Retained Earnings per Books.
Schedule M-3 is for Net Income (Loss) Reconciliation for Corporations With Total Assets of $10 Million or...

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