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Federal Tax Form 1040

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Federal Tax Form 1040

Federal tax form 1040 Publication 3402 - Introductory Material Table of Contents Reminder IntroductionOrdering forms and publications. Federal tax form 1040 Tax questions. Federal tax form 1040 Useful Items - You may want to see: Reminder Photographs of missing children. Federal tax form 1040  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Federal tax form 1040 Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Federal tax form 1040 You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Federal tax form 1040 Introduction This publication provides federal income, employment, and excise tax information for limited liability companies. Federal tax form 1040 This publication does not address state law governing the formation, operation, or termination of limited liability companies. Federal tax form 1040 This publication does not address any state taxes. Federal tax form 1040 Comments and suggestions. Federal tax form 1040   We welcome your comments about this publication and your suggestions for future editions. Federal tax form 1040   You can write to us at the following address: Internal Revenue Service Business Forms and Publications Branch SE:W:CAR:MP:T:B 1111 Constitution Ave. Federal tax form 1040 NW, IR–6526 Washington, DC 20224   We respond to many letters by telephone. Federal tax form 1040 Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Federal tax form 1040   You can email us at *taxforms@irs. Federal tax form 1040 gov. Federal tax form 1040 (The asterisk must be included in the address. Federal tax form 1040 ) Please put “Publications Comment” on the subject line. Federal tax form 1040 Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products. Federal tax form 1040 Ordering forms and publications. Federal tax form 1040   Visit www. Federal tax form 1040 irs. Federal tax form 1040 gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received. Federal tax form 1040 Internal Revenue Service1201 N. Federal tax form 1040 Mitsubishi MotorwayBloomington, IL 61705-6613 Tax questions. Federal tax form 1040   If you have a tax question, check the information available on www. Federal tax form 1040 irs. Federal tax form 1040 gov or call 1-800-829-1040. Federal tax form 1040 We cannot answer tax questions sent to either of the above addresses. Federal tax form 1040 Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 334 Tax Guide for Small Business 505 Tax Withholding and Estimated Tax 535 Business Expenses 541 Partnerships 542 Corporations 544 Sales and Other Dispositions of Assets 583 Starting a Business and Keeping Records 925 Passive Activity and At-Risk Rules Form (and Instructions) 1065 U. Federal tax form 1040 S. Federal tax form 1040 Return of Partnership Income 1120 U. Federal tax form 1040 S. Federal tax form 1040 Corporation Income Tax Return 1120S U. Federal tax form 1040 S. Federal tax form 1040 Income Tax Return for an S Corporation 2553 Election by a Small Business Corporation 8832 Entity Classification Election See How To Get More Information near the end of this publication for information about getting publications and forms. Federal tax form 1040 Prev  Up  Next   Home   More Online Publications
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The Federal Tax Form 1040

Federal tax form 1040 Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. Federal tax form 1040 Employee-owners. Federal tax form 1040 Other rules. Federal tax form 1040 Other rules. Federal tax form 1040 Property Exchanged for StockNonqualified preferred stock. Federal tax form 1040 Liabilities. Federal tax form 1040 Election to reduce basis. Federal tax form 1040 Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. Federal tax form 1040 S. Federal tax form 1040 Real Property Interest Accounting MethodsSection 481(a) adjustment. Federal tax form 1040 Accounting Periods Recordkeeping Income, Deductions, and Special ProvisionsCosts of Going Into Business Related Persons Income From Qualifying Shipping Activities Election to Expense Qualified Refinery Property Deduction to Comply With EPA Sulfur Regulations Energy-Efficient Commercial Building Property Deduction Corporate Preference Items Dividends-Received Deduction Extraordinary Dividends Below-Market Loans Charitable Contributions Capital Losses Net Operating Losses At-Risk Limits Passive Activity Limits Figuring TaxTax Rate Schedule Alternative Minimum Tax (AMT) Credits Recapture Taxes Accumulated Earnings Tax Distributions to ShareholdersMoney or Property Distributions Distributions of Stock or Stock Rights Constructive Distributions Reporting Dividends and Other Distributions How To Get Tax Help Businesses Taxed as Corporations The rules you must use to determine whether a business is taxed as a corporation changed for businesses formed after 1996. Federal tax form 1040 Business formed before 1997. Federal tax form 1040   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. Federal tax form 1040 Business formed after 1996. Federal tax form 1040   The following businesses formed after 1996 are taxed as corporations. Federal tax form 1040 A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. Federal tax form 1040 A business formed under a state law that refers to it as a joint-stock company or joint-stock association. Federal tax form 1040 An insurance company. Federal tax form 1040 Certain banks. Federal tax form 1040 A business wholly owned by a state or local government. Federal tax form 1040 A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). Federal tax form 1040 Certain foreign businesses. Federal tax form 1040 Any other business that elects to be taxed as a corporation. Federal tax form 1040 For example, a limited liability company (LLC) can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election. Federal tax form 1040 For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. Federal tax form 1040 S corporations. Federal tax form 1040   Some corporations may meet the qualifications for electing to be S corporations. Federal tax form 1040 For information on S corporations, see the instructions for Form 1120S, U. Federal tax form 1040 S. Federal tax form 1040 Income Tax Return for an S Corporation. Federal tax form 1040 Personal service corporations. Federal tax form 1040   A corporation is a personal service corporation if it meets all of the following requirements. Federal tax form 1040 Its principal activity during the “testing period” is performing personal services (defined later). Federal tax form 1040 Generally, the testing period for any tax year is the prior tax year. Federal tax form 1040 If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of: The last day of its tax year, or The last day of the calendar year in which its tax year begins. Federal tax form 1040 Its employee-owners substantially perform the services in (1), above. Federal tax form 1040 This requirement is met if more than 20% of the corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners. Federal tax form 1040 Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. Federal tax form 1040 Personal services. Federal tax form 1040   Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts. Federal tax form 1040 Employee-owners. Federal tax form 1040   A person is an employee-owner of a personal service corporation if both of the following apply. Federal tax form 1040 He or she is an employee of the corporation or performs personal services for, or on behalf of, the corporation (even if he or she is an independent contractor for other purposes) on any day of the testing period. Federal tax form 1040 He or she owns any stock in the corporation at any time during the testing period. Federal tax form 1040 Other rules. Federal tax form 1040   For other rules that apply to personal service corporations see Accounting Periods, later. Federal tax form 1040 Closely held corporations. Federal tax form 1040   A corporation is closely held if all of the following apply. Federal tax form 1040 It is not a personal service corporation. Federal tax form 1040 At any time during the last half of the tax year, more than 50% of the value of its outstanding stock is, directly or indirectly, owned by or for five or fewer individuals. Federal tax form 1040 “Individual” includes certain trusts and private foundations. Federal tax form 1040 Other rules. Federal tax form 1040   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. Federal tax form 1040 Property Exchanged for Stock If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock, described later), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. Federal tax form 1040 This rule applies both to individuals and to groups who transfer property to a corporation. Federal tax form 1040 It also applies whether the corporation is being formed or is already operating. Federal tax form 1040 It does not apply in the following situations. Federal tax form 1040 The corporation is an investment company. Federal tax form 1040 You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. Federal tax form 1040 The stock is received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt. Federal tax form 1040 Both the corporation and any person involved in a nontaxable exchange of property for stock must attach to their income tax returns a complete statement of all facts pertinent to the exchange. Federal tax form 1040 For more information, see section 1. Federal tax form 1040 351-3 of the Regulations. Federal tax form 1040 Control of a corporation. Federal tax form 1040   To be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock. Federal tax form 1040 Example 1. Federal tax form 1040 You and Bill Jones buy property for $100,000. Federal tax form 1040 You both organize a corporation when the property has a fair market value of $300,000. Federal tax form 1040 You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. Federal tax form 1040 No gain is recognized by you, Bill, or the corporation. Federal tax form 1040 Example 2. Federal tax form 1040 You and Bill transfer the property with a basis of $100,000 to a corporation in exchange for stock with a fair market value of $300,000. Federal tax form 1040 This represents only 75% of each class of stock of the corporation. Federal tax form 1040 The other 25% was already issued to someone else. Federal tax form 1040 You and Bill recognize a taxable gain of $200,000 on the transaction. Federal tax form 1040 Services rendered. Federal tax form 1040   The term property does not include services rendered or to be rendered to the issuing corporation. Federal tax form 1040 The value of stock received for services is income to the recipient. Federal tax form 1040 Example. Federal tax form 1040 You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. Federal tax form 1040 Right after the exchange, you own 85% of the outstanding stock. Federal tax form 1040 No gain is recognized on the exchange of property. Federal tax form 1040 However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. Federal tax form 1040 Property of relatively small value. Federal tax form 1040   The term property does not include property of a relatively small value when it is compared to the value of stock and securities already owned or to be received for services by the transferor if the main purpose of the transfer is to qualify for the nonrecognition of gain or loss by other transferors. Federal tax form 1040   Property transferred will not be considered to be of relatively small value if its fair market value is at least 10% of the fair market value of the stock and securities already owned or to be received for services by the transferor. Federal tax form 1040 Stock received in disproportion to property transferred. Federal tax form 1040   If a group of transferors exchange property for corporate stock, each transferor does not have to receive stock in proportion to his or her interest in the property transferred. Federal tax form 1040 If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. Federal tax form 1040 It may be treated as if the stock were first received in proportion and then some of it used to make gifts, pay compensation for services, or satisfy the transferor's obligations. Federal tax form 1040 Money or other property received. Federal tax form 1040   If, in an otherwise nontaxable exchange of property for corporate stock, you also receive money or property other than stock, you may have to recognize gain. Federal tax form 1040 You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. Federal tax form 1040 The rules for figuring the recognized gain in this situation generally follow those for a partially nontaxable exchange discussed in Publication 544 under Like-Kind Exchanges. Federal tax form 1040 If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. Federal tax form 1040 See chapter 3 of Publication 544. Federal tax form 1040 No loss is recognized. Federal tax form 1040 Nonqualified preferred stock. Federal tax form 1040   Nonqualified preferred stock is treated as property other than stock. Federal tax form 1040 Generally, it is preferred stock with any of the following features. Federal tax form 1040 The holder has the right to require the issuer or a related person to redeem or buy the stock. Federal tax form 1040 The issuer or a related person is required to redeem or buy the stock. Federal tax form 1040 The issuer or a related person has the right to redeem or buy the stock and, on the issue date, it is more likely than not that the right will be exercised. Federal tax form 1040 The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. Federal tax form 1040 For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. Federal tax form 1040 Liabilities. Federal tax form 1040   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. Federal tax form 1040 There are two exceptions to this treatment. Federal tax form 1040 If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. Federal tax form 1040 However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. Federal tax form 1040 If there is no good business reason for the corporation to assume your liabilities, or if your main purpose in the exchange is to avoid federal income tax, the assumption is treated as if you received money in the amount of the liabilities. Federal tax form 1040 For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. Federal tax form 1040 Example. Federal tax form 1040 You transfer property to a corporation for stock. Federal tax form 1040 Immediately after the transfer, you control the corporation. Federal tax form 1040 You also receive $10,000 in the exchange. Federal tax form 1040 Your adjusted basis in the transferred property is $20,000. Federal tax form 1040 The stock you receive has a fair market value (FMV) of $16,000. Federal tax form 1040 The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. Federal tax form 1040 Gain is realized as follows. Federal tax form 1040 FMV of stock received $16,000 Cash received 10,000 Liability assumed by corporation 5,000 Total received $31,000 Minus: Adjusted basis of property transferred 20,000 Realized gain $11,000   The liability assumed is not treated as money or other property. Federal tax form 1040 The recognized gain is limited to $10,000, the cash received. Federal tax form 1040 Loss on exchange. Federal tax form 1040   If you have a loss from an exchange and own, directly or indirectly, more than 50% of the corporation's stock, you cannot deduct the loss. Federal tax form 1040 For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Federal tax form 1040 Basis of stock or other property received. Federal tax form 1040   The basis of the stock you receive is generally the adjusted basis of the property you transfer. Federal tax form 1040 Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. Federal tax form 1040 Decrease this amount by any cash you received, the fair market value of any other property you received, and any loss recognized on the exchange. Federal tax form 1040 Also decrease this amount by the amount of any liability the corporation or another party to the exchange assumed from you, unless payment of the liability gives rise to a deduction when paid. Federal tax form 1040    Further decreases may be required when the corporation or another party to the exchange assumes from you a liability that gives rise to a deduction when paid, if the basis of the stock would otherwise be higher than its fair market value on the date of the exchange. Federal tax form 1040 This rule does not apply if the entity assuming the liability acquired either substantially all of the assets or the trade or business with which the liability is associated. Federal tax form 1040 The basis of any other property you receive is its fair market value on the date of the trade. Federal tax form 1040 Basis of property transferred. Federal tax form 1040   A corporation that receives property from you in exchange for its stock generally has the same basis you had in the property, increased by any gain you recognized on the exchange. Federal tax form 1040 However, the increase for the gain recognized may be limited. Federal tax form 1040 For more information, see section 362 of the Internal Revenue Code. Federal tax form 1040 Election to reduce basis. Federal tax form 1040   In a section 351 transaction, if the adjusted basis of the property transferred exceeds the property's fair market value, the transferor and transferee may make an irrevocable election to treat the basis of the stock received by the transferor as having a basis equal to the fair market value of the property transferred. Federal tax form 1040 The transferor and transferee make this election by attaching a statement to their tax returns filed by the due date (including extensions) for the tax year in which the transaction occurred. Federal tax form 1040 However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. Federal tax form 1040 R. Federal tax form 1040 B. Federal tax form 1040 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. Federal tax form 1040    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. Federal tax form 1040 Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. Federal tax form 1040 Paid-in capital. Federal tax form 1040   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. Federal tax form 1040 These contributions are not taxable to the corporation. Federal tax form 1040 Basis. Federal tax form 1040   The corporation's basis of property contributed to capital by a shareholder is the same as the basis the shareholder had in the property, increased by any gain the shareholder recognized on the exchange. Federal tax form 1040 However, the increase for the gain recognized may be limited. Federal tax form 1040 For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. Federal tax form 1040   The basis of property contributed to capital by a person other than a shareholder is zero. Federal tax form 1040   If a corporation receives a cash contribution from a person other than a shareholder, the corporation must reduce the basis of any property acquired with the contribution during the 12-month period beginning on the day it received the contribution by the amount of the contribution. Federal tax form 1040 If the amount contributed is more than the cost of the property acquired, then reduce, but not below zero, the basis of the other properties held by the corporation on the last day of the 12-month period in the following order. Federal tax form 1040 Depreciable property. Federal tax form 1040 Amortizable property. Federal tax form 1040 Property subject to cost depletion but not to percentage depletion. Federal tax form 1040 All other remaining properties. Federal tax form 1040   Reduce the basis of property in each category to zero before going on to the next category. Federal tax form 1040   There may be more than one piece of property in each category. Federal tax form 1040 Base the reduction of the basis of each property on the following ratio:   Basis of each piece of property   Bases of all properties (within that category) If the corporation wishes to make this adjustment in some other way, it must get IRS approval. Federal tax form 1040 The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. Federal tax form 1040 Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. Federal tax form 1040 A corporation generally must make estimated tax payments as it earns or receives income during its tax year. Federal tax form 1040 After the end of the year, the corporation must file an income tax return. Federal tax form 1040 This section will help you determine when and how to pay and file corporate income taxes. Federal tax form 1040 For certain corporations affected by Presidentially declared disasters such as hurricanes, the due dates for filing returns, paying taxes, and performing other time-sensitive acts may be extended. Federal tax form 1040 The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. Federal tax form 1040 For more information, visit www. Federal tax form 1040 irs. Federal tax form 1040 gov/newsroom/article/0,,id=108362. Federal tax form 1040 00. Federal tax form 1040 Income Tax Return This section will help you determine when and how to report a corporation's income tax. Federal tax form 1040 Who must file. Federal tax form 1040   Unless exempt under section 501 of the Internal Revenue Code, all domestic corporations in existence for any part of a tax year (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. Federal tax form 1040 Which form to file. Federal tax form 1040   A corporation generally must file Form 1120, U. Federal tax form 1040 S. Federal tax form 1040 Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. Federal tax form 1040 Certain organizations and entities must file special returns. Federal tax form 1040 For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. Federal tax form 1040 Electronic filing. Federal tax form 1040   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. Federal tax form 1040 Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. Federal tax form 1040 However, in certain instances, these corporations can request a waiver. Federal tax form 1040 For more information regarding electronic filing, visit www. Federal tax form 1040 irs. Federal tax form 1040 gov/efile. Federal tax form 1040 When to file. Federal tax form 1040   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. Federal tax form 1040 A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. Federal tax form 1040 A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. Federal tax form 1040 Example 1. Federal tax form 1040 A corporation's tax year ends December 31. Federal tax form 1040 It must file its income tax return by March 15th. Federal tax form 1040 Example 2. Federal tax form 1040 A corporation's tax year ends June 30. Federal tax form 1040 It must file its income tax return by September 15th. Federal tax form 1040   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. Federal tax form 1040 Extension of time to file. Federal tax form 1040   File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, to request an extension of time to file a corporation income tax return. Federal tax form 1040 The IRS will grant the extension if you complete the form properly, file it, and pay any tax due by the original due date for the return. Federal tax form 1040   Form 7004 does not extend the time for paying the tax due on the return. Federal tax form 1040 Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. Federal tax form 1040 The interest is figured from the original due date of the return to the date of payment. Federal tax form 1040   For more information, see the instructions for Form 7004. Federal tax form 1040 How to pay your taxes. Federal tax form 1040   A corporation must pay its tax due in full no later than the 15th day of the 3rd month after the end of its tax year. Federal tax form 1040 Electronic Federal Tax Payment System (EFTPS). Federal tax form 1040   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). Federal tax form 1040 For more information on EFTPS and enrollment, visit www. Federal tax form 1040 eftps. Federal tax form 1040 gov or call 1-800-555-4477. Federal tax form 1040 Also see Publication 966, The Secure Way to Pay Your Federal Taxes. Federal tax form 1040 Note. Federal tax form 1040 Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. Federal tax form 1040 Penalties Generally, if the corporation receives a notice about interest and penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. Federal tax form 1040 Do not attach an explanation when the corporation's return is filed. Federal tax form 1040 See the instructions for your income tax return. Federal tax form 1040 Late filing of return. Federal tax form 1040    A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. Federal tax form 1040 If the corporation is charged a penalty for late payment of tax (discussed next) for the same period of time, the penalty for late filing is reduced by the amount of the penalty for late payment. Federal tax form 1040 The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. Federal tax form 1040 The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. Federal tax form 1040 Late payment of tax. Federal tax form 1040    A corporation that does not pay the tax when due may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. Federal tax form 1040 The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. Federal tax form 1040 Trust fund recovery penalty. Federal tax form 1040   If income, social security, and Medicare taxes that a corporation must withhold from employee wages are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. Federal tax form 1040 The penalty is the full amount of the unpaid trust fund tax. Federal tax form 1040 This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. Federal tax form 1040   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. Federal tax form 1040   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. Federal tax form 1040 A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. Federal tax form 1040   Willfully means voluntarily, consciously, and intentionally. Federal tax form 1040 A responsible person acts willfully if the person knows the required actions are not taking place. Federal tax form 1040   For more information on withholding and paying these taxes, see Publication 15 (Circular E), Employer's Tax Guide, and Publication 51, (Circular A), Agricultural Employer's Tax Guide. Federal tax form 1040 Other penalties. Federal tax form 1040   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. Federal tax form 1040 See sections 6662, 6662A, and 6663 of the Internal Revenue Code. Federal tax form 1040 Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. Federal tax form 1040 If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. Federal tax form 1040 This section will explain how to avoid this penalty. Federal tax form 1040 When to pay estimated tax. Federal tax form 1040   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. Federal tax form 1040 Example 1. Federal tax form 1040 Your corporation's tax year ends December 31. Federal tax form 1040 Installment payments are due on April 15, June 15, September 15, and December 15. Federal tax form 1040 Example 2. Federal tax form 1040 Your corporation's tax year ends June 30. Federal tax form 1040 Installment payments are due on October 15, December 15, March 15, and June 15. Federal tax form 1040   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. Federal tax form 1040 How to figure each required installment. Federal tax form 1040   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. Federal tax form 1040 You will generally use one of the following two methods to figure each required installment. Federal tax form 1040 You should use the method that yields the smallest installment payments. Federal tax form 1040 Note. Federal tax form 1040 In these discussions, “return” generally refers to the corporation's original return. Federal tax form 1040 However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. Federal tax form 1040 Method 1. Federal tax form 1040   Each required installment is 25% of the income tax the corporation will show on its return for the current year. Federal tax form 1040 Method 2. Federal tax form 1040   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. Federal tax form 1040   To use Method 2: The corporation must have filed a return for the previous year, The return must have been for a full 12 months, and The return must have shown a positive tax liability (not zero). Federal tax form 1040 Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. Federal tax form 1040   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. Federal tax form 1040 Other methods. Federal tax form 1040   If a corporation's income is expected to vary during the year because, for example, its business is seasonal, it may be able to lower the amount of one or more required installments by using one or both of the following methods. Federal tax form 1040 The annualized income installment method. Federal tax form 1040 The adjusted seasonal installment method. Federal tax form 1040 Use Schedule A of Form 1120-W to determine if using one or both of these methods will lower the amount of any required installments. Federal tax form 1040 Refiguring required installments. Federal tax form 1040   If after the corporation figures and deposits its estimated tax it finds that its tax liability for the year will be more or less than originally estimated, it may have to refigure its required installments to see if an underpayment penalty may apply. Federal tax form 1040 An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. Federal tax form 1040 Underpayment penalty. Federal tax form 1040   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. Federal tax form 1040 The penalty is figured separately for each installment due date. Federal tax form 1040 The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. Federal tax form 1040 This is true even if the corporation is due a refund when its return is filed. Federal tax form 1040 Form 2220. Federal tax form 1040   Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. Federal tax form 1040   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. Federal tax form 1040 The amount of the underpayment. Federal tax form 1040 The period during which the underpayment was due and unpaid. Federal tax form 1040 The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. Federal tax form 1040   A corporation generally does not have to file Form 2220 with its income tax return because the IRS will figure any penalty and bill the corporation. Federal tax form 1040 However, even if the corporation does not owe a penalty, complete and attach the form to the corporation's tax return if any of the following apply. Federal tax form 1040 The annualized income installment method was used to figure any required installment. Federal tax form 1040 The adjusted seasonal installment method was used to figure any required installment. Federal tax form 1040 The corporation is a large corporation figuring its first required installment based on the prior year's tax. Federal tax form 1040 How to pay estimated tax. Federal tax form 1040   A corporation is generally required to use EFTPS to pay its taxes. Federal tax form 1040 See Electronic Federal Tax Payment System (EFTPS), earlier. Federal tax form 1040 Also see the Instructions for Form 1120-W. Federal tax form 1040 Quick refund of overpayments. Federal tax form 1040   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. Federal tax form 1040 Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund of an overpayment of estimated tax. Federal tax form 1040 A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. Federal tax form 1040 Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. Federal tax form 1040 File Form 4466 before the 16th day of the 3rd month after the end of the tax year, but before the corporation files its income tax return. Federal tax form 1040 Do not file Form 4466 before the end of the corporation's tax year. Federal tax form 1040 An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. Federal tax form 1040 The IRS will act on the form within 45 days from the date you file it. Federal tax form 1040 U. Federal tax form 1040 S. Federal tax form 1040 Real Property Interest If a domestic corporation acquires a U. Federal tax form 1040 S. Federal tax form 1040 real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. Federal tax form 1040 The amount paid includes cash, the fair market value of other property, and any assumed liability. Federal tax form 1040 If a domestic corporation distributes a U. Federal tax form 1040 S. Federal tax form 1040 real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. Federal tax form 1040 A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. Federal tax form 1040 For more information, see section 1445 of the Internal Revenue Code; Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities; Form 8288, U. Federal tax form 1040 S. Federal tax form 1040 Withholding Tax Return for Dispositions by Foreign Persons of U. Federal tax form 1040 S. Federal tax form 1040 Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. Federal tax form 1040 S. Federal tax form 1040 Real Property Interests. Federal tax form 1040 Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. Federal tax form 1040 Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. Federal tax form 1040 In all cases, the method used must clearly show taxable income. Federal tax form 1040 Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. Federal tax form 1040 Accrual method. Federal tax form 1040   Generally, a corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. Federal tax form 1040 A corporation engaged in farming operations also must use the accrual method. Federal tax form 1040   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. Federal tax form 1040 However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method for eligible trades or businesses and may account for inventoriable items as materials and supplies that are not incidental. Federal tax form 1040   Under the accrual method, an amount is includable in income when: All the events have occurred that fix the right to receive the income, which is the earliest of the date: The required performance takes place, Payment is due, or Payment is received; and The amount can be determined with reasonable accuracy. Federal tax form 1040   Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year when: All events that determine the liability have occurred, The amount of the liability can be figured with reasonable accuracy, and Economic performance takes place with respect to the expense. Federal tax form 1040   There are exceptions to the economic performance rule for certain items, including recurring expenses. Federal tax form 1040 See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. Federal tax form 1040 Nonaccrual experience method. Federal tax form 1040   Accrual method corporations are not required to maintain accruals for certain amounts from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; or The corporation's average annual gross receipts for the 3 prior tax years does not exceed $5 million. Federal tax form 1040   This provision does not apply if interest is required to be paid on the amount or if there is any penalty for failure to pay the amount timely. Federal tax form 1040 Percentage of completion method. Federal tax form 1040   Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage of completion method described in section 460 of the Internal Revenue Code. Federal tax form 1040 Mark-to-market accounting method. Federal tax form 1040   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. Federal tax form 1040 Under this method any security held by a dealer as inventory must be included in inventory at its FMV. Federal tax form 1040 Any security not held as inventory at the close of the tax year is treated as sold at its FMV on the last business day of the tax year. Federal tax form 1040 Any gain or loss must be taken into account in determining gross income. Federal tax form 1040 The gain or loss taken into account is treated as ordinary gain or loss. Federal tax form 1040   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. Federal tax form 1040 Change in accounting method. Federal tax form 1040   A corporation can change its method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). Federal tax form 1040 The corporation must file Form 3115, Application for Change in Accounting Method. Federal tax form 1040 For more information, see Form 3115 and Publication 538. Federal tax form 1040 Section 481(a) adjustment. Federal tax form 1040   The corporation may have to make an adjustment under section 481(a) of the Internal Revenue Code to prevent amounts of income or expense from being duplicated or omitted. Federal tax form 1040 The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. Federal tax form 1040 However, a corporation can elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. Federal tax form 1040 The corporation must complete the appropriate lines of Form 3115 to make the election. Federal tax form 1040 See the Instructions for Form 3115. Federal tax form 1040 Accounting Periods A corporation must figure its taxable income on the basis of a tax year. Federal tax form 1040 A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. Federal tax form 1040 Generally, corporations can use either a calendar year or a fiscal year as its tax year. Federal tax form 1040 Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. Federal tax form 1040 For more information, see Publication 538. Federal tax form 1040 Personal service corporation. Federal tax form 1040   A personal service corporation must use a calendar year as its tax year unless: It elects to use a 52–53 week tax year that ends with reference to the calendar year; It can establish a business purpose for a different tax year and obtains approval of the IRS. Federal tax form 1040 See Form 1128, Application To Adopt, Change, or Retain a Tax Year, and Publication 538; or It elects under section 444 of the Internal Revenue Code to have a tax year other than a calendar year. Federal tax form 1040 Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. Federal tax form 1040   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. Federal tax form 1040 See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. Federal tax form 1040 Change of tax year. Federal tax form 1040   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. Federal tax form 1040 However, under certain conditions, a corporation can change its tax year without getting the consent. Federal tax form 1040 For more information, see Form 1128 and Publication 538. Federal tax form 1040 Recordkeeping A corporation should keep its records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Federal tax form 1040 Usually records that support items of income, deductions, or credits on the return must be kept for 3 years from the date the return is due or filed, whichever is later. Federal tax form 1040 Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property. Federal tax form 1040 The corporation should keep copies of all filed returns. Federal tax form 1040 They help in preparing future and amended returns and in the calculation of earnings and profits. Federal tax form 1040 Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. Federal tax form 1040 However, the following special provisions apply only to corporations. Federal tax form 1040 Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. Federal tax form 1040 However, a corporation can elect to deduct a limited amount of start-up or organizational costs. Federal tax form 1040 Any costs not deducted can be amortized. Federal tax form 1040 Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. Federal tax form 1040 Organizational costs are the direct costs of creating the corporation. Federal tax form 1040 For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. Federal tax form 1040 Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. Federal tax form 1040 Related Persons A corporation that uses an accrual method of accounting cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until the corporation makes the payment and the corresponding amount is includible in the related person's gross income. Federal tax form 1040 Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. Federal tax form 1040 If a deduction is denied, the rule will continue to apply even if the corporation's relationship with the person ends before the expense or interest is includible in the gross income of that person. Federal tax form 1040 These rules also deny the deduction of losses on the sale or exchange of property between related persons. Federal tax form 1040 Related persons. Federal tax form 1040   For purposes of this rule, the following persons are related to a corporation. Federal tax form 1040 Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). Federal tax form 1040 An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. Federal tax form 1040 A trust fiduciary, when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. Federal tax form 1040 An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Federal tax form 1040 A partnership, if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. Federal tax form 1040 Any employee-owner, if the corporation is a personal service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned by the employee-owner. Federal tax form 1040 Ownership of stock. Federal tax form 1040   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. Federal tax form 1040 Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being owned proportionately by or for its shareholders, partners, or beneficiaries. Federal tax form 1040 An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. Federal tax form 1040 Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. Federal tax form 1040 Any individual owning (other than by applying (2), above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner. Federal tax form 1040 To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. Federal tax form 1040 But stock constructively owned by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or (3) to make another person the constructive owner of that stock. Federal tax form 1040 Reallocation of income and deductions. Federal tax form 1040   Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly, or indirectly, by the same interests. Federal tax form 1040 Complete liquidations. Federal tax form 1040   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. Federal tax form 1040 More information. Federal tax form 1040   For more information about the related person rules, see Publication 544. Federal tax form 1040 Income From Qualifying Shipping Activities A corporation may make an election to be taxed on its notional shipping income at the highest corporate tax rate. Federal tax form 1040 If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. Federal tax form 1040 Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. Federal tax form 1040 A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. Federal tax form 1040 A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. Federal tax form 1040 For more information regarding the election, see Form 8902. Federal tax form 1040 Election to Expense Qualified Refinery Property A corporation can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct 50% of the cost of qualified refinery property (defined in section 179C(c) of the Internal Revenue Code), placed in service before January 1, 2014. Federal tax form 1040 The deduction is allowed for the year in which the property is placed in service. Federal tax form 1040 A subchapter T cooperative can make an irrevocable election on its return by the due date (including extensions) to allocate this deduction to its owners based on their ownership interest. Federal tax form 1040 For more information, see section 179C of the Internal Revenue Code and the related Regulations. Federal tax form 1040 Deduction to Comply With EPA Sulfur Regulations A small business refiner can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct up to 75% of qualified costs paid or incurred to comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency (EPA). Federal tax form 1040 A subchapter T cooperative can make an irrevocable election on its return filed by the due date (including extensions) to allocate the deduction to its owners based on their ownership interest. Federal tax form 1040 For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. Federal tax form 1040 Energy-Efficient Commercial Building Property Deduction A corporation can claim a deduction for costs associated with energy-efficient commercial building property, placed in service before January 1, 2014. Federal tax form 1040 In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. Federal tax form 1040 1-2001 domestic building; The property must be either a part of the interior lighting system, the heating, cooling, ventilation and hot water system, or the building envelope (defined in section 179D(c)(1)(C) of the Internal Revenue Code); and The property must be installed as part of a plan to reduce the total annual energy and power costs of the building by 50% or more. Federal tax form 1040 The deduction is limited to $1. Federal tax form 1040 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. Federal tax form 1040 Other rules and limitations apply. Federal tax form 1040 The corporation must reduce the basis of any property by any deduction taken. Federal tax form 1040 The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. Federal tax form 1040 For more information, see section 179D of the Internal Revenue Code. Federal tax form 1040 Also see Notice 2006-52, 2006-26 I. Federal tax form 1040 R. Federal tax form 1040 B. Federal tax form 1040 1175, clarified and amplified by Notice 2008-40, 2008-14 I. Federal tax form 1040 R. Federal tax form 1040 B. Federal tax form 1040 725, and any successor. Federal tax form 1040 Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. Federal tax form 1040 These items are known as corporate preference items and they include the following. Federal tax form 1040 Gain on the disposition of section 1250 property. Federal tax form 1040 For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. Federal tax form 1040 Percentage depletion for iron ore and coal (including lignite). Federal tax form 1040 For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. Federal tax form 1040 Amortization of pollution control facilities. Federal tax form 1040 For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. Federal tax form 1040 Mineral exploration and development costs. Federal tax form 1040 For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. Federal tax form 1040 For more information on corporate preference items, see section 291 of the Internal Revenue Code. Federal tax form 1040 Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. Federal tax form 1040 This section discusses the general rules that apply. Federal tax form 1040 The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. Federal tax form 1040 For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. Federal tax form 1040 Dividends from domestic corporations. Federal tax form 1040   A corporation can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. Federal tax form 1040 If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received. Federal tax form 1040 Ownership. Federal tax form 1040   Determine ownership, for these rules, by the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) the receiving corporation owns. Federal tax form 1040 Small business investment companies. Federal tax form 1040   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. Federal tax form 1040 Dividends from regulated investment companies. Federal tax form 1040   Regulated investment company dividends received are subject to certain limits. Federal tax form 1040 Capital gain dividends received from a regulated investment company do not qualify for the deduction. Federal tax form 1040 For more information, see section 854 of the Internal Revenue Code. Federal tax form 1040 No deduction allowed for certain dividends. Federal tax form 1040   Corporations cannot take a deduction for dividends received from the following entities. Federal tax form 1040 A real estate investment trust (REIT). Federal tax form 1040 A corporation exempt from tax under section 501 or 521 of the Internal Revenue Code either for the tax year of the distribution or the preceding tax year. Federal tax form 1040 A corporation whose stock was held less than 46 days during the 91-day period beginning 45 days before the stock became ex-dividend with respect to the dividend. Federal tax form 1040 Ex-dividend means the holder has no rights to the dividend. Federal tax form 1040 A corporation whose preferred stock was held less than 91 days during the 181-day period beginning 90 days before the stock became ex-dividend with respect to the dividend if the dividends received are for a period or periods totaling more than 366 days. Federal tax form 1040 Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Federal tax form 1040 Dividends on deposits. Federal tax form 1040   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. Federal tax form 1040 They do not qualify for this deduction. Federal tax form 1040 Limit on deduction for dividends. Federal tax form 1040   The total deduction for dividends received or accrued is generally limited (in the following order) to: 80% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from 20%-owned corporations, then 70% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations). Federal tax form 1040 Figuring the limit. Federal tax form 1040   In figuring the limit, determine taxable income without the following items. Federal tax form 1040 The net operating loss deduction. Federal tax form 1040 The domestic production activities deduction. Federal tax form 1040 The deduction for dividends received. Federal tax form 1040 Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). Federal tax form 1040 Any capital loss carryback to the tax year. Federal tax form 1040 Effect of net operating loss. Federal tax form 1040   If a corporation has a net operating loss (NOL) for a tax year, the limit of 80% (or 70%) of taxable income does not apply. Federal tax form 1040 To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. Federal tax form 1040 Example 1. Federal tax form 1040 A corporation loses $25,000 from operations. Federal tax form 1040 It receives $100,000 in dividends from a 20%-owned corporation. Federal tax form 1040 Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. Federal tax form 1040 If it claims the full dividends-received deduction of $80,000 ($100,000 × 80%) and combines it with an operations loss of $25,000, it will have an NOL of ($5,000). Federal tax form 1040 Therefore, the 80% of taxable income limit does not apply. Federal tax form 1040 The corporation can deduct the full $80,000. Federal tax form 1040 Example 2. Federal tax form 1040 Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. Federal tax form 1040 Its taxable income is $85,000 before the deduction for dividends received. Federal tax form 1040 After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. Federal tax form 1040 Because the corporation will not have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 80% of its taxable income, or $68,000 ($85,000 × 80%). Federal tax form 1040 Extraordinary Dividends If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must reduce its basis in the stock by the nontaxed part of the dividend. Federal tax form 1040 The nontaxed part is any dividends-received deduction allowable for the dividends. Federal tax form 1040 Extraordinary dividend. Federal tax form 1040   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. Federal tax form 1040 The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. Federal tax form 1040 Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. Federal tax form 1040 Treat all dividends received that have ex-dividend dates within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock. Federal tax form 1040 Disqualified preferred stock. Federal tax form 1040   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. Federal tax form 1040   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. Federal tax form 1040 The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. Federal tax form 1040 The issue price of the stock exceeds its liquidation rights or stated redemption price. Federal tax form 1040 The stock is otherwise structured to avoid the rules for extraordinary dividends and to enable corporate shareholders to reduce tax through a combination of dividends-received deductions and loss on the disposition of the stock. Federal tax form 1040   These rules apply to stock issued after July 10, 1989, unless it was issued under a written binding contract in effect on that date, and thereafter, before the issuance of the stock. Federal tax form 1040 More information. Federal tax form 1040   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. Federal tax form 1040 Below-Market Loans If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest. Federal tax form 1040 A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Federal tax form 1040 A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received both the following: A loan in exchange for a note that requires payment of interest at the applicable federal rate, and An additional payment in an amount equal to the forgone interest. Federal tax form 1040 Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. Federal tax form 1040 Foregone interest. Federal tax form 1040   For any period, forgone interest is equal to: The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Federal tax form 1040 See Below-market loans, in chapter 4 of Publication 535 for more information. Federal tax form 1040 Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. Federal tax form 1040 The contribution is deductible if made to, or for the use of, a qualified organization. Federal tax form 1040 For more information on qualified organizations, see Publication 526, Charitable Contributions. Federal tax form 1040 Also see, Exempt Organizations Select Check (EO Select Check) at www. Federal tax form 1040 irs. Federal tax form 1040 gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. Federal tax form 1040 Note. Federal tax form 1040 You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. Federal tax form 1040 Cash method corporation. Federal tax form 1040   A corporation using the cash method of accounting deducts contributions in the tax year paid. Federal tax form 1040 Accrual method corporation. Federal tax form 1040   A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the 15th day of the 3rd month after the close of that tax year. Federal tax form 1040 Make the choice by reporting the contribution on the corporation's return for the tax year. Federal tax form 1040 A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. Federal tax form 1040 The declaration must include the date the resolution was adopted. Federal tax form 1040 Limitations on deduction. Federal tax form 1040   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. Federal tax form 1040 Figure taxable income for this purpose without the following. Federal tax form 1040 The deduction for charitable contributions. Federal tax form 1040 The dividends-received deduction. Federal tax form 1040 The deduction allowed under section 249 of the Internal Revenue Code. Federal tax form 1040 The domestic production activities deduction. Federal tax form 1040 Any net operating loss carryback to the tax year. Federal tax form 1040 Any capital loss carryback to the tax year. Federal tax form 1040 Farmers and ranchers. Federal tax form 1040    Corporations that are farmers and ranchers should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit. Federal tax form 1040 Carryover of excess contributions. Federal tax form 1040   You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. Federal tax form 1040 You lose any excess not used within that period. Federal tax form 1040 For example, if a corporation has a carryover of excess contributions paid in 2010 and it does not use all the excess on its return for 2011, it can carry any excess over to 2012, 2013, 2014, and 2015, if applicable. Federal tax form 1040 Any excess not used in 2015 is lost. Federal tax form 1040 Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). Federal tax form 1040 You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. Federal tax form 1040 Cash contributions. Federal tax form 1040   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. Federal tax form 1040 The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. Federal tax form 1040 Keep the record of the contribution with the other corporate records. Federal tax form 1040 Do not attach the records to the corporation's return. Federal tax form 1040 For more information on cash contributions, see Publication 526. Federal tax form 1040 Gifts of $250 or more. Federal tax form 1040   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. Federal tax form 1040 The acknowledgement should show the amount of cash contributed, a description of the property contributed, and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. Federal tax form 1040 The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. Federal tax form 1040 Keep the acknowledgement with other corporate records. Federal tax form 1040 Do not attach the acknowledgement to the return. Federal tax form 1040 Contributions of property other than cash. Federal tax form 1040   If a corporation (other than a closely-held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. Federal tax form 1040 In addition the corporation should keep a record of: The approximate date and manner of acquisition of the donated property and The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution. Federal tax form 1040   Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. Federal tax form 1040 For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return. Federal tax form 1040   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. Federal tax form 1040 A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. Federal tax form 1040 The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000; $20,000 for donated art work. Federal tax form 1040   See Form 8283 for more information. Federal tax form 1040 Qualified conservation contributions. Federal tax form 1040   If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. Federal tax form 1040 For more information, see section 170(h) of the Internal Revenue Code. Federal tax form 1040 Contributions of used vehicles. Federal tax form 1040   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. Federal tax form 1040 The deduction is limited, and other special rules apply. Federal tax form 1040 For more information, see Publication 526. Federal tax form 1040 Reduction for contributions of certain property. Federal tax form 1040   For a charitable contribution of property, the corporation must reduce the contribution by the sum of: The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV and For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV. Federal tax form 1040   The reduction for the long-term capital gain applies to: Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption; Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available; and Contributions of any patent, certain copyrights, trademark, trade name, trade secret, know-how, software (that is a section 197 intangible), or similar property, or applications or registrations of such property. Federal tax form 1040 Larger deduction. Federal tax form 1040   A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus one-half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. Federal tax form 1040 This deduction may be allowed for certain contributions of: Certain inventory and other property made to a donee organization and used solely for the care of the ill, the needy, and infants. Federal tax form 1040 Scientific property constructed by the corporation (other than an S corporation, personal holding company, or personal service corporation) and donated no later than 2 years after substantial completion of the construction. Federal tax form 1040 The property must be donated to a qualified organization and its original use must be by the donee for research, experimentation, or research training within the United States in the area of physical or biological science. Federal tax form 1040 Computer technology and equipment acquired or constructed and donated no later than 3 years after either acquisition or substantial completion of construction to an educational organization for educational purposes within the United States. Federal tax form 1040 Contributions to organizations conducting lobbying activities. Federal tax form 1040   Contributions made to an organization that conducts lobbying activities are not deductible if: The lobbying activities relate to matters of direct financial interest to the donor's trade or business and The principal purpose of the contribution was to avoid federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor. Federal tax form 1040 More information. Federal tax form 1040   For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Publication 526. Federal tax form 1040 Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. Federal tax form 1040 In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. Federal tax form 1040 Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. Federal tax form 1040 A capital loss is carried to other years in the following order. Federal tax form 1040 3 years prior to the loss year. Federal tax form 1040 2 years prior to the loss year. Federal tax form 1040 1 year prior to the loss year. Federal tax form 1040 Any loss remaining is carried forward for 5 years. Federal tax form 1040 When you carry a net capital loss to another tax year, treat it as a short-term loss. Federal tax form 1040 It does not retain its original identity as long term or short term. Federal tax form 1040 Example. Federal tax form 1040 A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. Federal tax form 1040 The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. Federal tax form 1040 The corporation treats this $6,000 as a short-term loss when carried back or forward. Federal tax form 1040 The corporation carries the $6,000 short-term loss back 3 years. Federal tax form 1040 In year 1, the corporation had a net short-term capital gain of $8,000 and a net long-term capital gain of $5,000. Federal tax form 1040 It subtracts the $6,000 short-term loss first from the net short-term gain. Federal tax form 1040 This results in a net capital gain for year 1 of $7,000. Federal tax form 1040 This consists of a net short-term capital gain of $2,000 ($8,000 − $6,000) and a net long-term capital gain of $5,000. Federal tax form 1040 S corporation status. Federal tax form 1040   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. Federal tax form 1040 Rules for carryover and carryback. Federal tax form 1040   When carrying a capital loss from one year to another, the following rules apply. Federal tax form 1040 When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. Federal tax form 1040 In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. Federal tax form 1040 If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. Federal tax form 1040 You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it back. Federal tax form 1040 Refunds. Federal tax form 1040   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. Federal tax form 1040 If your corrected tax is less than the tax you originally owed, use either Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U. Federal tax form 1040 S. Federal tax form 1040 Corporation Income Tax Return, to apply for a refund. Federal tax form 1040 Form 1139. Federal tax form 1040    A corporation can get a refund faster by using Form 1139. Federal tax form 1040 It cannot file Form 1139 before filing the return for the corporation's capital loss year, but it must file Form 1139 no later than 1 year after the year it sustains the capital loss. Federal tax form 1040 Form 1120X. Federal tax form 1040   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. Federal tax form 1040 The corporation must file the Form 1120X within 3 years of the due date, includin