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File My 2012 Tax Return

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File My 2012 Tax Return

File my 2012 tax return Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. File my 2012 tax return Employee-owners. File my 2012 tax return Other rules. File my 2012 tax return Other rules. File my 2012 tax return Property Exchanged for StockNonqualified preferred stock. File my 2012 tax return Liabilities. File my 2012 tax return Election to reduce basis. File my 2012 tax return Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. File my 2012 tax return S. File my 2012 tax return Real Property Interest Accounting MethodsSection 481(a) adjustment. File my 2012 tax return 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. File my 2012 tax return Business formed before 1997. File my 2012 tax return   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. File my 2012 tax return Business formed after 1996. File my 2012 tax return   The following businesses formed after 1996 are taxed as corporations. File my 2012 tax return A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. File my 2012 tax return A business formed under a state law that refers to it as a joint-stock company or joint-stock association. File my 2012 tax return An insurance company. File my 2012 tax return Certain banks. File my 2012 tax return A business wholly owned by a state or local government. File my 2012 tax return A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). File my 2012 tax return Certain foreign businesses. File my 2012 tax return Any other business that elects to be taxed as a corporation. File my 2012 tax return 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. File my 2012 tax return For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. File my 2012 tax return S corporations. File my 2012 tax return   Some corporations may meet the qualifications for electing to be S corporations. File my 2012 tax return For information on S corporations, see the instructions for Form 1120S, U. File my 2012 tax return S. File my 2012 tax return Income Tax Return for an S Corporation. File my 2012 tax return Personal service corporations. File my 2012 tax return   A corporation is a personal service corporation if it meets all of the following requirements. File my 2012 tax return Its principal activity during the “testing period” is performing personal services (defined later). File my 2012 tax return Generally, the testing period for any tax year is the prior tax year. File my 2012 tax return 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. File my 2012 tax return Its employee-owners substantially perform the services in (1), above. File my 2012 tax return 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. File my 2012 tax return Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. File my 2012 tax return Personal services. File my 2012 tax return   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. File my 2012 tax return Employee-owners. File my 2012 tax return   A person is an employee-owner of a personal service corporation if both of the following apply. File my 2012 tax return 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. File my 2012 tax return He or she owns any stock in the corporation at any time during the testing period. File my 2012 tax return Other rules. File my 2012 tax return   For other rules that apply to personal service corporations see Accounting Periods, later. File my 2012 tax return Closely held corporations. File my 2012 tax return   A corporation is closely held if all of the following apply. File my 2012 tax return It is not a personal service corporation. File my 2012 tax return 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. File my 2012 tax return “Individual” includes certain trusts and private foundations. File my 2012 tax return Other rules. File my 2012 tax return   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. File my 2012 tax return 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. File my 2012 tax return This rule applies both to individuals and to groups who transfer property to a corporation. File my 2012 tax return It also applies whether the corporation is being formed or is already operating. File my 2012 tax return It does not apply in the following situations. File my 2012 tax return The corporation is an investment company. File my 2012 tax return You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. File my 2012 tax return 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. File my 2012 tax return 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. File my 2012 tax return For more information, see section 1. File my 2012 tax return 351-3 of the Regulations. File my 2012 tax return Control of a corporation. File my 2012 tax return   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. File my 2012 tax return Example 1. File my 2012 tax return You and Bill Jones buy property for $100,000. File my 2012 tax return You both organize a corporation when the property has a fair market value of $300,000. File my 2012 tax return You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. File my 2012 tax return No gain is recognized by you, Bill, or the corporation. File my 2012 tax return Example 2. File my 2012 tax return 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. File my 2012 tax return This represents only 75% of each class of stock of the corporation. File my 2012 tax return The other 25% was already issued to someone else. File my 2012 tax return You and Bill recognize a taxable gain of $200,000 on the transaction. File my 2012 tax return Services rendered. File my 2012 tax return   The term property does not include services rendered or to be rendered to the issuing corporation. File my 2012 tax return The value of stock received for services is income to the recipient. File my 2012 tax return Example. File my 2012 tax return You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. File my 2012 tax return Right after the exchange, you own 85% of the outstanding stock. File my 2012 tax return No gain is recognized on the exchange of property. File my 2012 tax return However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. File my 2012 tax return Property of relatively small value. File my 2012 tax return   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. File my 2012 tax return   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. File my 2012 tax return Stock received in disproportion to property transferred. File my 2012 tax return   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. File my 2012 tax return If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. File my 2012 tax return 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. File my 2012 tax return Money or other property received. File my 2012 tax return   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. File my 2012 tax return You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. File my 2012 tax return 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. File my 2012 tax return If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. File my 2012 tax return See chapter 3 of Publication 544. File my 2012 tax return No loss is recognized. File my 2012 tax return Nonqualified preferred stock. File my 2012 tax return   Nonqualified preferred stock is treated as property other than stock. File my 2012 tax return Generally, it is preferred stock with any of the following features. File my 2012 tax return The holder has the right to require the issuer or a related person to redeem or buy the stock. File my 2012 tax return The issuer or a related person is required to redeem or buy the stock. File my 2012 tax return 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. File my 2012 tax return The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. File my 2012 tax return For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. File my 2012 tax return Liabilities. File my 2012 tax return   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. File my 2012 tax return There are two exceptions to this treatment. File my 2012 tax return If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. File my 2012 tax return However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. File my 2012 tax return 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. File my 2012 tax return For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. File my 2012 tax return Example. File my 2012 tax return You transfer property to a corporation for stock. File my 2012 tax return Immediately after the transfer, you control the corporation. File my 2012 tax return You also receive $10,000 in the exchange. File my 2012 tax return Your adjusted basis in the transferred property is $20,000. File my 2012 tax return The stock you receive has a fair market value (FMV) of $16,000. File my 2012 tax return The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. File my 2012 tax return Gain is realized as follows. File my 2012 tax return 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. File my 2012 tax return The recognized gain is limited to $10,000, the cash received. File my 2012 tax return Loss on exchange. File my 2012 tax return   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. File my 2012 tax return For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. File my 2012 tax return Basis of stock or other property received. File my 2012 tax return   The basis of the stock you receive is generally the adjusted basis of the property you transfer. File my 2012 tax return Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. File my 2012 tax return 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. File my 2012 tax return 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. File my 2012 tax return    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. File my 2012 tax return 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. File my 2012 tax return The basis of any other property you receive is its fair market value on the date of the trade. File my 2012 tax return Basis of property transferred. File my 2012 tax return   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. File my 2012 tax return However, the increase for the gain recognized may be limited. File my 2012 tax return For more information, see section 362 of the Internal Revenue Code. File my 2012 tax return Election to reduce basis. File my 2012 tax return   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. File my 2012 tax return 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. File my 2012 tax return However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. File my 2012 tax return R. File my 2012 tax return B. File my 2012 tax return 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. File my 2012 tax return    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. File my 2012 tax return Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. File my 2012 tax return Paid-in capital. File my 2012 tax return   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. File my 2012 tax return These contributions are not taxable to the corporation. File my 2012 tax return Basis. File my 2012 tax return   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. File my 2012 tax return However, the increase for the gain recognized may be limited. File my 2012 tax return For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. File my 2012 tax return   The basis of property contributed to capital by a person other than a shareholder is zero. File my 2012 tax return   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. File my 2012 tax return 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. File my 2012 tax return Depreciable property. File my 2012 tax return Amortizable property. File my 2012 tax return Property subject to cost depletion but not to percentage depletion. File my 2012 tax return All other remaining properties. File my 2012 tax return   Reduce the basis of property in each category to zero before going on to the next category. File my 2012 tax return   There may be more than one piece of property in each category. File my 2012 tax return 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. File my 2012 tax return The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. File my 2012 tax return Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. File my 2012 tax return A corporation generally must make estimated tax payments as it earns or receives income during its tax year. File my 2012 tax return After the end of the year, the corporation must file an income tax return. File my 2012 tax return This section will help you determine when and how to pay and file corporate income taxes. File my 2012 tax return 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. File my 2012 tax return The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. File my 2012 tax return For more information, visit www. File my 2012 tax return irs. File my 2012 tax return gov/newsroom/article/0,,id=108362. File my 2012 tax return 00. File my 2012 tax return Income Tax Return This section will help you determine when and how to report a corporation's income tax. File my 2012 tax return Who must file. File my 2012 tax return   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. File my 2012 tax return Which form to file. File my 2012 tax return   A corporation generally must file Form 1120, U. File my 2012 tax return S. File my 2012 tax return Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. File my 2012 tax return Certain organizations and entities must file special returns. File my 2012 tax return For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. File my 2012 tax return Electronic filing. File my 2012 tax return   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. File my 2012 tax return Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. File my 2012 tax return However, in certain instances, these corporations can request a waiver. File my 2012 tax return For more information regarding electronic filing, visit www. File my 2012 tax return irs. File my 2012 tax return gov/efile. File my 2012 tax return When to file. File my 2012 tax return   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. File my 2012 tax return A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. File my 2012 tax return A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. File my 2012 tax return Example 1. File my 2012 tax return A corporation's tax year ends December 31. File my 2012 tax return It must file its income tax return by March 15th. File my 2012 tax return Example 2. File my 2012 tax return A corporation's tax year ends June 30. File my 2012 tax return It must file its income tax return by September 15th. File my 2012 tax return   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. File my 2012 tax return Extension of time to file. File my 2012 tax return   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. File my 2012 tax return 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. File my 2012 tax return   Form 7004 does not extend the time for paying the tax due on the return. File my 2012 tax return Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. File my 2012 tax return The interest is figured from the original due date of the return to the date of payment. File my 2012 tax return   For more information, see the instructions for Form 7004. File my 2012 tax return How to pay your taxes. File my 2012 tax return   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. File my 2012 tax return Electronic Federal Tax Payment System (EFTPS). File my 2012 tax return   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). File my 2012 tax return For more information on EFTPS and enrollment, visit www. File my 2012 tax return eftps. File my 2012 tax return gov or call 1-800-555-4477. File my 2012 tax return Also see Publication 966, The Secure Way to Pay Your Federal Taxes. File my 2012 tax return Note. File my 2012 tax return Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. File my 2012 tax return 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. File my 2012 tax return Do not attach an explanation when the corporation's return is filed. File my 2012 tax return See the instructions for your income tax return. File my 2012 tax return Late filing of return. File my 2012 tax return    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. File my 2012 tax return 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. File my 2012 tax return The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. File my 2012 tax return The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. File my 2012 tax return Late payment of tax. File my 2012 tax return    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. File my 2012 tax return The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. File my 2012 tax return Trust fund recovery penalty. File my 2012 tax return   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. File my 2012 tax return The penalty is the full amount of the unpaid trust fund tax. File my 2012 tax return This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. File my 2012 tax return   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. File my 2012 tax return   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. File my 2012 tax return A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. File my 2012 tax return   Willfully means voluntarily, consciously, and intentionally. File my 2012 tax return A responsible person acts willfully if the person knows the required actions are not taking place. File my 2012 tax return   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. File my 2012 tax return Other penalties. File my 2012 tax return   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. File my 2012 tax return See sections 6662, 6662A, and 6663 of the Internal Revenue Code. File my 2012 tax return Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. File my 2012 tax return If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. File my 2012 tax return This section will explain how to avoid this penalty. File my 2012 tax return When to pay estimated tax. File my 2012 tax return   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. File my 2012 tax return Example 1. File my 2012 tax return Your corporation's tax year ends December 31. File my 2012 tax return Installment payments are due on April 15, June 15, September 15, and December 15. File my 2012 tax return Example 2. File my 2012 tax return Your corporation's tax year ends June 30. File my 2012 tax return Installment payments are due on October 15, December 15, March 15, and June 15. File my 2012 tax return   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. File my 2012 tax return How to figure each required installment. File my 2012 tax return   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. File my 2012 tax return You will generally use one of the following two methods to figure each required installment. File my 2012 tax return You should use the method that yields the smallest installment payments. File my 2012 tax return Note. File my 2012 tax return In these discussions, “return” generally refers to the corporation's original return. File my 2012 tax return However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. File my 2012 tax return Method 1. File my 2012 tax return   Each required installment is 25% of the income tax the corporation will show on its return for the current year. File my 2012 tax return Method 2. File my 2012 tax return   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. File my 2012 tax return   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). File my 2012 tax return Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. File my 2012 tax return   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. File my 2012 tax return Other methods. File my 2012 tax return   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. File my 2012 tax return The annualized income installment method. File my 2012 tax return The adjusted seasonal installment method. File my 2012 tax return 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. File my 2012 tax return Refiguring required installments. File my 2012 tax return   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. File my 2012 tax return An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. File my 2012 tax return Underpayment penalty. File my 2012 tax return   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. File my 2012 tax return The penalty is figured separately for each installment due date. File my 2012 tax return The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. File my 2012 tax return This is true even if the corporation is due a refund when its return is filed. File my 2012 tax return Form 2220. File my 2012 tax return   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. File my 2012 tax return   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. File my 2012 tax return The amount of the underpayment. File my 2012 tax return The period during which the underpayment was due and unpaid. File my 2012 tax return The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. File my 2012 tax return   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. File my 2012 tax return 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. File my 2012 tax return The annualized income installment method was used to figure any required installment. File my 2012 tax return The adjusted seasonal installment method was used to figure any required installment. File my 2012 tax return The corporation is a large corporation figuring its first required installment based on the prior year's tax. File my 2012 tax return How to pay estimated tax. File my 2012 tax return   A corporation is generally required to use EFTPS to pay its taxes. File my 2012 tax return See Electronic Federal Tax Payment System (EFTPS), earlier. File my 2012 tax return Also see the Instructions for Form 1120-W. File my 2012 tax return Quick refund of overpayments. File my 2012 tax return   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. File my 2012 tax return 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. File my 2012 tax return A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. File my 2012 tax return Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. File my 2012 tax return 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. File my 2012 tax return Do not file Form 4466 before the end of the corporation's tax year. File my 2012 tax return An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. File my 2012 tax return The IRS will act on the form within 45 days from the date you file it. File my 2012 tax return U. File my 2012 tax return S. File my 2012 tax return Real Property Interest If a domestic corporation acquires a U. File my 2012 tax return S. File my 2012 tax return real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. File my 2012 tax return The amount paid includes cash, the fair market value of other property, and any assumed liability. File my 2012 tax return If a domestic corporation distributes a U. File my 2012 tax return S. File my 2012 tax return real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. File my 2012 tax return A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. File my 2012 tax return 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. File my 2012 tax return S. File my 2012 tax return Withholding Tax Return for Dispositions by Foreign Persons of U. File my 2012 tax return S. File my 2012 tax return Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. File my 2012 tax return S. File my 2012 tax return Real Property Interests. File my 2012 tax return Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. File my 2012 tax return Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. File my 2012 tax return In all cases, the method used must clearly show taxable income. File my 2012 tax return Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. File my 2012 tax return Accrual method. File my 2012 tax return   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. File my 2012 tax return A corporation engaged in farming operations also must use the accrual method. File my 2012 tax return   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. File my 2012 tax return 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. File my 2012 tax return   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. File my 2012 tax return   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. File my 2012 tax return   There are exceptions to the economic performance rule for certain items, including recurring expenses. File my 2012 tax return See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. File my 2012 tax return Nonaccrual experience method. File my 2012 tax return   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. File my 2012 tax return   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. File my 2012 tax return Percentage of completion method. File my 2012 tax return   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. File my 2012 tax return Mark-to-market accounting method. File my 2012 tax return   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. File my 2012 tax return Under this method any security held by a dealer as inventory must be included in inventory at its FMV. File my 2012 tax return 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. File my 2012 tax return Any gain or loss must be taken into account in determining gross income. File my 2012 tax return The gain or loss taken into account is treated as ordinary gain or loss. File my 2012 tax return   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. File my 2012 tax return Change in accounting method. File my 2012 tax return   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). File my 2012 tax return The corporation must file Form 3115, Application for Change in Accounting Method. File my 2012 tax return For more information, see Form 3115 and Publication 538. File my 2012 tax return Section 481(a) adjustment. File my 2012 tax return   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. File my 2012 tax return The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. File my 2012 tax return 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. File my 2012 tax return The corporation must complete the appropriate lines of Form 3115 to make the election. File my 2012 tax return See the Instructions for Form 3115. File my 2012 tax return Accounting Periods A corporation must figure its taxable income on the basis of a tax year. File my 2012 tax return A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. File my 2012 tax return Generally, corporations can use either a calendar year or a fiscal year as its tax year. File my 2012 tax return Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. File my 2012 tax return For more information, see Publication 538. File my 2012 tax return Personal service corporation. File my 2012 tax return   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. File my 2012 tax return 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. File my 2012 tax return Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. File my 2012 tax return   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. File my 2012 tax return See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. File my 2012 tax return Change of tax year. File my 2012 tax return   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. File my 2012 tax return However, under certain conditions, a corporation can change its tax year without getting the consent. File my 2012 tax return For more information, see Form 1128 and Publication 538. File my 2012 tax return 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. File my 2012 tax return 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. File my 2012 tax return 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. File my 2012 tax return The corporation should keep copies of all filed returns. File my 2012 tax return They help in preparing future and amended returns and in the calculation of earnings and profits. File my 2012 tax return Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. File my 2012 tax return However, the following special provisions apply only to corporations. File my 2012 tax return Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. File my 2012 tax return However, a corporation can elect to deduct a limited amount of start-up or organizational costs. File my 2012 tax return Any costs not deducted can be amortized. File my 2012 tax return Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. File my 2012 tax return Organizational costs are the direct costs of creating the corporation. File my 2012 tax return For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. File my 2012 tax return Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. File my 2012 tax return 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. File my 2012 tax return Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. File my 2012 tax return 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. File my 2012 tax return These rules also deny the deduction of losses on the sale or exchange of property between related persons. File my 2012 tax return Related persons. File my 2012 tax return   For purposes of this rule, the following persons are related to a corporation. File my 2012 tax return Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). File my 2012 tax return An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. File my 2012 tax return 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. File my 2012 tax return An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. File my 2012 tax return 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. File my 2012 tax return 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. File my 2012 tax return Ownership of stock. File my 2012 tax return   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. File my 2012 tax return 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. File my 2012 tax return An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. File my 2012 tax return Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. File my 2012 tax return 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. File my 2012 tax return To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. File my 2012 tax return 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. File my 2012 tax return Reallocation of income and deductions. File my 2012 tax return   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. File my 2012 tax return Complete liquidations. File my 2012 tax return   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. File my 2012 tax return More information. File my 2012 tax return   For more information about the related person rules, see Publication 544. File my 2012 tax return 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. File my 2012 tax return If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. File my 2012 tax return Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. File my 2012 tax return A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. File my 2012 tax return A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. File my 2012 tax return For more information regarding the election, see Form 8902. File my 2012 tax return 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. File my 2012 tax return The deduction is allowed for the year in which the property is placed in service. File my 2012 tax return 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. File my 2012 tax return For more information, see section 179C of the Internal Revenue Code and the related Regulations. File my 2012 tax return 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). File my 2012 tax return 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. File my 2012 tax return For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. File my 2012 tax return 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. File my 2012 tax return In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. File my 2012 tax return 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. File my 2012 tax return The deduction is limited to $1. File my 2012 tax return 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. File my 2012 tax return Other rules and limitations apply. File my 2012 tax return The corporation must reduce the basis of any property by any deduction taken. File my 2012 tax return The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. File my 2012 tax return For more information, see section 179D of the Internal Revenue Code. File my 2012 tax return Also see Notice 2006-52, 2006-26 I. File my 2012 tax return R. File my 2012 tax return B. File my 2012 tax return 1175, clarified and amplified by Notice 2008-40, 2008-14 I. File my 2012 tax return R. File my 2012 tax return B. File my 2012 tax return 725, and any successor. File my 2012 tax return Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. File my 2012 tax return These items are known as corporate preference items and they include the following. File my 2012 tax return Gain on the disposition of section 1250 property. File my 2012 tax return For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. File my 2012 tax return Percentage depletion for iron ore and coal (including lignite). File my 2012 tax return For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. File my 2012 tax return Amortization of pollution control facilities. File my 2012 tax return For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. File my 2012 tax return Mineral exploration and development costs. File my 2012 tax return For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. File my 2012 tax return For more information on corporate preference items, see section 291 of the Internal Revenue Code. File my 2012 tax return Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. File my 2012 tax return This section discusses the general rules that apply. File my 2012 tax return The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. File my 2012 tax return For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. File my 2012 tax return Dividends from domestic corporations. File my 2012 tax return   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. File my 2012 tax return 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. File my 2012 tax return Ownership. File my 2012 tax return   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. File my 2012 tax return Small business investment companies. File my 2012 tax return   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. File my 2012 tax return Dividends from regulated investment companies. File my 2012 tax return   Regulated investment company dividends received are subject to certain limits. File my 2012 tax return Capital gain dividends received from a regulated investment company do not qualify for the deduction. File my 2012 tax return For more information, see section 854 of the Internal Revenue Code. File my 2012 tax return No deduction allowed for certain dividends. File my 2012 tax return   Corporations cannot take a deduction for dividends received from the following entities. File my 2012 tax return A real estate investment trust (REIT). File my 2012 tax return 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. File my 2012 tax return 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. File my 2012 tax return Ex-dividend means the holder has no rights to the dividend. File my 2012 tax return 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. File my 2012 tax return 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. File my 2012 tax return Dividends on deposits. File my 2012 tax return   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. File my 2012 tax return They do not qualify for this deduction. File my 2012 tax return Limit on deduction for dividends. File my 2012 tax return   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). File my 2012 tax return Figuring the limit. File my 2012 tax return   In figuring the limit, determine taxable income without the following items. File my 2012 tax return The net operating loss deduction. File my 2012 tax return The domestic production activities deduction. File my 2012 tax return The deduction for dividends received. File my 2012 tax return Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). File my 2012 tax return Any capital loss carryback to the tax year. File my 2012 tax return Effect of net operating loss. File my 2012 tax return   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. File my 2012 tax return To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. File my 2012 tax return Example 1. File my 2012 tax return A corporation loses $25,000 from operations. File my 2012 tax return It receives $100,000 in dividends from a 20%-owned corporation. File my 2012 tax return Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. File my 2012 tax return 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). File my 2012 tax return Therefore, the 80% of taxable income limit does not apply. File my 2012 tax return The corporation can deduct the full $80,000. File my 2012 tax return Example 2. File my 2012 tax return Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. File my 2012 tax return Its taxable income is $85,000 before the deduction for dividends received. File my 2012 tax return After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. File my 2012 tax return 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%). File my 2012 tax return 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. File my 2012 tax return The nontaxed part is any dividends-received deduction allowable for the dividends. File my 2012 tax return Extraordinary dividend. File my 2012 tax return   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. File my 2012 tax return The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. File my 2012 tax return Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. File my 2012 tax return 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. File my 2012 tax return Disqualified preferred stock. File my 2012 tax return   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. File my 2012 tax return   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. File my 2012 tax return The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. File my 2012 tax return The issue price of the stock exceeds its liquidation rights or stated redemption price. File my 2012 tax return 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. File my 2012 tax return   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. File my 2012 tax return More information. File my 2012 tax return   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. File my 2012 tax return 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. File my 2012 tax return 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. File my 2012 tax return 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. File my 2012 tax return Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. File my 2012 tax return Foregone interest. File my 2012 tax return   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. File my 2012 tax return See Below-market loans, in chapter 4 of Publication 535 for more information. File my 2012 tax return Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. File my 2012 tax return The contribution is deductible if made to, or for the use of, a qualified organization. File my 2012 tax return For more information on qualified organizations, see Publication 526, Charitable Contributions. File my 2012 tax return Also see, Exempt Organizations Select Check (EO Select Check) at www. File my 2012 tax return irs. File my 2012 tax return gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. File my 2012 tax return Note. File my 2012 tax return You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. File my 2012 tax return Cash method corporation. File my 2012 tax return   A corporation using the cash method of accounting deducts contributions in the tax year paid. File my 2012 tax return Accrual method corporation. File my 2012 tax return   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. File my 2012 tax return Make the choice by reporting the contribution on the corporation's return for the tax year. File my 2012 tax return A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. File my 2012 tax return The declaration must include the date the resolution was adopted. File my 2012 tax return Limitations on deduction. File my 2012 tax return   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. File my 2012 tax return Figure taxable income for this purpose without the following. File my 2012 tax return The deduction for charitable contributions. File my 2012 tax return The dividends-received deduction. File my 2012 tax return The deduction allowed under section 249 of the Internal Revenue Code. File my 2012 tax return The domestic production activities deduction. File my 2012 tax return Any net operating loss carryback to the tax year. File my 2012 tax return Any capital loss carryback to the tax year. File my 2012 tax return Farmers and ranchers. File my 2012 tax return    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. File my 2012 tax return Carryover of excess contributions. File my 2012 tax return   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. File my 2012 tax return You lose any excess not used within that period. File my 2012 tax return 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. File my 2012 tax return Any excess not used in 2015 is lost. File my 2012 tax return 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). File my 2012 tax return You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. File my 2012 tax return Cash contributions. File my 2012 tax return   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. File my 2012 tax return 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. File my 2012 tax return Keep the record of the contribution with the other corporate records. File my 2012 tax return Do not attach the records to the corporation's return. File my 2012 tax return For more information on cash contributions, see Publication 526. File my 2012 tax return Gifts of $250 or more. File my 2012 tax return   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. File my 2012 tax return 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. File my 2012 tax return The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. File my 2012 tax return Keep the acknowledgement with other corporate records. File my 2012 tax return Do not attach the acknowledgement to the return. File my 2012 tax return Contributions of property other than cash. File my 2012 tax return   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. File my 2012 tax return 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. File my 2012 tax return   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. File my 2012 tax return 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. File my 2012 tax return   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. File my 2012 tax return 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. File my 2012 tax return 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. File my 2012 tax return   See Form 8283 for more information. File my 2012 tax return Qualified conservation contributions. File my 2012 tax return   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. File my 2012 tax return For more information, see section 170(h) of the Internal Revenue Code. File my 2012 tax return Contributions of used vehicles. File my 2012 tax return   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. File my 2012 tax return The deduction is limited, and other special rules apply. File my 2012 tax return For more information, see Publication 526. File my 2012 tax return Reduction for contributions of certain property. File my 2012 tax return   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. File my 2012 tax return   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. File my 2012 tax return Larger deduction. File my 2012 tax return   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. File my 2012 tax return 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. File my 2012 tax return 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. File my 2012 tax return 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. File my 2012 tax return 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. File my 2012 tax return Contributions to organizations conducting lobbying activities. File my 2012 tax return   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. File my 2012 tax return More information. File my 2012 tax return   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. File my 2012 tax return Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. File my 2012 tax return In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. File my 2012 tax return Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. File my 2012 tax return A capital loss is carried to other years in the following order. File my 2012 tax return 3 years prior to the loss year. File my 2012 tax return 2 years prior to the loss year. File my 2012 tax return 1 year prior to the loss year. File my 2012 tax return Any loss remaining is carried forward for 5 years. File my 2012 tax return When you carry a net capital loss to another tax year, treat it as a short-term loss. File my 2012 tax return It does not retain its original identity as long term or short term. File my 2012 tax return Example. File my 2012 tax return A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. File my 2012 tax return The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. File my 2012 tax return The corporation treats this $6,000 as a short-term loss when carried back or forward. File my 2012 tax return The corporation carries the $6,000 short-term loss back 3 years. File my 2012 tax return 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. File my 2012 tax return It subtracts the $6,000 short-term loss first from the net short-term gain. File my 2012 tax return This results in a net capital gain for year 1 of $7,000. File my 2012 tax return 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. File my 2012 tax return S corporation status. File my 2012 tax return   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. File my 2012 tax return Rules for carryover and carryback. File my 2012 tax return   When carrying a capital loss from one year to another, the following rules apply. File my 2012 tax return When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. File my 2012 tax return In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. File my 2012 tax return If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. File my 2012 tax return 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. File my 2012 tax return Refunds. File my 2012 tax return   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. File my 2012 tax return 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. File my 2012 tax return S. File my 2012 tax return Corporation Income Tax Return, to apply for a refund. File my 2012 tax return Form 1139. File my 2012 tax return    A corporation can get a refund faster by using Form 1139. File my 2012 tax return 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. File my 2012 tax return Form 1120X. File my 2012 tax return   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. File my 2012 tax return The corporation must file the Form 1120X within 3 years of the due date, includin
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File my 2012 tax return 6. File my 2012 tax return   How To Figure Cost of Goods Sold Table of Contents Introduction Figuring Cost of Goods Sold on Schedule C, Lines 35 Through 42Line 35 Inventory at Beginning of Year Line 36 Purchases Less Cost of Items Withdrawn for Personal Use Line 37 Cost of Labor Line 38 Materials and Supplies Line 39 Other Costs Line 40 Add Lines 35 through 39 Line 41 Inventory at End of Year Line 42 Cost of Goods Sold Introduction If you make or buy goods to sell, you can deduct the cost of goods sold from your gross receipts on Schedule C. File my 2012 tax return However, to determine these costs, you must value your inventory at the beginning and end of each tax year. File my 2012 tax return This chapter applies to you if you are a manufacturer, wholesaler, or retailer or if you are engaged in any business that makes, buys, or sells goods to produce income. File my 2012 tax return This chapter does not apply to a personal service business, such as the business of a doctor, lawyer, carpenter, or painter. File my 2012 tax return However, if you work in a personal service business and also sell or charge for the materials and supplies normally used in your business, this chapter applies to you. File my 2012 tax return If you must account for an inventory in your business, you must generally use an accrual method of accounting for your purchases and sales. File my 2012 tax return For more information, see chapter 2. File my 2012 tax return Figuring Cost of Goods Sold on Schedule C, Lines 35 Through 42 Figure your cost of goods sold by filling out lines 35 through 42 of Schedule C. File my 2012 tax return These lines are reproduced below and are explained in the discussion that follows. File my 2012 tax return 35 Inventory at beginning of year. File my 2012 tax return If different from last year's closing inventory, attach explanation   36 Purchases less cost of items withdrawn for personal use   37 Cost of labor. File my 2012 tax return Do not include any amounts paid to yourself   38 Materials and supplies   39 Other costs   40 Add lines 35 through 39   41 Inventory at end of year   42 Cost of goods sold. File my 2012 tax return Subtract line 41 from line 40. File my 2012 tax return  Enter the result here and on line 4   Line 35 Inventory at Beginning of Year If you are a merchant, beginning inventory is the cost of merchandise on hand at the beginning of the year that you will sell to customers. File my 2012 tax return If you are a manufacturer or producer, it includes the total cost of raw materials, work in process, finished goods, and materials and supplies used in manufacturing the goods (see Inventories in chapter 2). File my 2012 tax return Opening inventory usually will be identical to the closing inventory of the year before. File my 2012 tax return You must explain any difference in a schedule attached to your return. File my 2012 tax return Donation of inventory. File my 2012 tax return   If you contribute inventory (property that you sell in the course of your business), the amount you can claim as a contribution deduction is the smaller of its fair market value on the day you contributed it or its basis. File my 2012 tax return The basis of donated inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. File my 2012 tax return You must remove the amount of your contribution deduction from your opening inventory. File my 2012 tax return It is not part of the cost of goods sold. File my 2012 tax return   If the cost of donated inventory is not included in your opening inventory, the inventory's basis is zero and you cannot claim a charitable contribution deduction. File my 2012 tax return Treat the inventory's cost as you would ordinarily treat it under your method of accounting. File my 2012 tax return For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year. File my 2012 tax return   A special rule may apply to certain donations of food inventory. File my 2012 tax return See Publication 526, Charitable Contributions. File my 2012 tax return Example 1. File my 2012 tax return You are a calendar year taxpayer who uses an accrual method of accounting. File my 2012 tax return In 2013, you contributed property from inventory to a church. File my 2012 tax return It had a fair market value of $600. File my 2012 tax return The closing inventory at the end of 2012 properly included $400 of costs due to the acquisition of the property, and in 2012, you properly deducted $50 of administrative and other expenses attributable to the property as business expenses. File my 2012 tax return The charitable contribution allowed for 2013 is $400 ($600 − $200). File my 2012 tax return The $200 is the amount that would be ordinary income if you had sold the contributed inventory at fair market value on the date of the gift. File my 2012 tax return The cost of goods sold you use in determining gross income for 2013 must not include the $400. File my 2012 tax return You remove that amount from opening inventory for 2013. File my 2012 tax return Example 2. File my 2012 tax return If, in Example 1, you acquired the contributed property in 2013 at a cost of $400, you would include the $400 cost of the property in figuring the cost of goods sold for 2013 and deduct the $50 of administrative and other expenses attributable to the property for that year. File my 2012 tax return You would not be allowed any charitable contribution deduction for the contributed property. File my 2012 tax return Line 36 Purchases Less Cost of Items Withdrawn for Personal Use If you are a merchant, use the cost of all merchandise you bought for sale. File my 2012 tax return If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into a finished product. File my 2012 tax return Trade discounts. File my 2012 tax return   The differences between the stated prices of articles and the actual prices you pay for them are called trade discounts. File my 2012 tax return You must use the prices you pay (not the stated prices) in figuring your cost of purchases. File my 2012 tax return Do not show the discount amount separately as an item in gross income. File my 2012 tax return   An automobile dealer must record the cost of a car in inventory reduced by any manufacturer's rebate that represents a trade discount. File my 2012 tax return Cash discounts. File my 2012 tax return   Cash discounts are amounts your suppliers let you deduct from your purchase invoices for prompt payments. File my 2012 tax return There are two methods of accounting for cash discounts. File my 2012 tax return You can either credit them to a separate discount account or deduct them from total purchases for the year. File my 2012 tax return Whichever method you use, you must be consistent. File my 2012 tax return If you want to change your method of figuring inventory cost, you must file Form 3115, Application for Change in Accounting Method. File my 2012 tax return For more information, see Change in Accounting Method in chapter 2. File my 2012 tax return   If you credit cash discounts to a separate account, you must include this credit balance in your business income at the end of the tax year. File my 2012 tax return If you use this method, do not reduce your cost of goods sold by the cash discounts. File my 2012 tax return Purchase returns and allowances. File my 2012 tax return   You must deduct all returns and allowances from your total purchases during the year. File my 2012 tax return Merchandise withdrawn from sale. File my 2012 tax return   If you withdraw merchandise for your personal or family use, you must exclude this cost from the total amount of merchandise you bought for sale. File my 2012 tax return Do this by crediting the purchases or sales account with the cost of merchandise you withdraw for personal use. File my 2012 tax return You must also charge the amount to your drawing account. File my 2012 tax return   A drawing account is a separate account you should keep to record the business income you withdraw to pay for personal and family expenses. File my 2012 tax return As stated above, you also use it to record withdrawals of merchandise for personal or family use. File my 2012 tax return This account is also known as a “withdrawals account” or “personal account. File my 2012 tax return ” Line 37 Cost of Labor Labor costs are usually an element of cost of goods sold only in a manufacturing or mining business. File my 2012 tax return Small merchandisers (wholesalers, retailers, etc. File my 2012 tax return ) usually do not have labor costs that can properly be charged to cost of goods sold. File my 2012 tax return In a manufacturing business, labor costs properly allocable to the cost of goods sold include both the direct and indirect labor used in fabricating the raw material into a finished, saleable product. File my 2012 tax return Direct labor. File my 2012 tax return   Direct labor costs are the wages you pay to those employees who spend all their time working directly on the product being manufactured. File my 2012 tax return They also include a part of the wages you pay to employees who work directly on the product part time if you can determine that part of their wages. File my 2012 tax return Indirect labor. File my 2012 tax return   Indirect labor costs are the wages you pay to employees who perform a general factory function that does not have any immediate or direct connection with making the saleable product, but that is a necessary part of the manufacturing process. File my 2012 tax return Other labor. File my 2012 tax return   Other labor costs not properly chargeable to the cost of goods sold can be deducted as selling or administrative expenses. File my 2012 tax return Generally, the only kinds of labor costs properly chargeable to your cost of goods sold are the direct or indirect labor costs and certain other costs treated as overhead expenses properly charged to the manufacturing process, as discussed later under Line 39 Other Costs. File my 2012 tax return Line 38 Materials and Supplies Materials and supplies, such as hardware and chemicals, used in manufacturing goods are charged to cost of goods sold. File my 2012 tax return Those that are not used in the manufacturing process are treated as deferred charges. File my 2012 tax return You deduct them as a business expense when you use them. File my 2012 tax return Business expenses are discussed in chapter 8. File my 2012 tax return Line 39 Other Costs Examples of other costs incurred in a manufacturing or mining process that you charge to your cost of goods sold are as follows. File my 2012 tax return Containers. File my 2012 tax return   Containers and packages that are an integral part of the product manufactured are a part of your cost of goods sold. File my 2012 tax return If they are not an integral part of the manufactured product, their costs are shipping or selling expenses. File my 2012 tax return Freight-in. File my 2012 tax return   Freight-in, express-in, and cartage-in on raw materials, supplies you use in production, and merchandise you purchase for sale are all part of cost of goods sold. File my 2012 tax return Overhead expenses. File my 2012 tax return   Overhead expenses include expenses such as rent, heat, light, power, insurance, depreciation, taxes, maintenance, labor, and supervision. File my 2012 tax return The overhead expenses you have as direct and necessary expenses of the manufacturing operation are included in your cost of goods sold. File my 2012 tax return Line 40 Add Lines 35 through 39 The total of lines 35 through 39 equals the cost of the goods available for sale during the year. File my 2012 tax return Line 41 Inventory at End of Year Subtract the value of your closing inventory (including, as appropriate, the allocable parts of the cost of raw materials and supplies, direct labor, and overhead expenses) from line 40. File my 2012 tax return Inventory at the end of the year is also known as closing or ending inventory. File my 2012 tax return Your ending inventory will usually become the beginning inventory of your next tax year. File my 2012 tax return Line 42 Cost of Goods Sold When you subtract your closing inventory (inventory at the end of the year) from the cost of goods available for sale, the remainder is your cost of goods sold during the tax year. File my 2012 tax return Prev  Up  Next   Home   More Online Publications