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

Myfreetaxes Publication 521 - Introductory Material Table of Contents What's New Reminders IntroductionOrdering forms and publications. Myfreetaxes Tax questions. Myfreetaxes Useful Items - You may want to see: What's New Standard mileage rate. Myfreetaxes  For 2013, the standard mileage rate for using your vehicle to move to a new home is 24 cents per mile. Myfreetaxes See Travel by car under Deductible Moving Expenses. Myfreetaxes Reminders Future developments. Myfreetaxes  For the latest information about developments related to Publication 521, such as legislation enacted after it was published, go to www. Myfreetaxes irs. Myfreetaxes gov/pub521. Myfreetaxes Change of address. Myfreetaxes  If you change your mailing address, be sure to notify the IRS using Form 8822, Change of Address. Myfreetaxes Mail it to the Internal Revenue Service Center for your old address. Myfreetaxes Addresses for the service centers are on the back of the form. Myfreetaxes If you change your business address or the identity of your responsible party, use Form 8822-B, Change of Address or Responsible Party—Business. Myfreetaxes Photographs of missing children. Myfreetaxes  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Myfreetaxes Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Myfreetaxes You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Myfreetaxes Introduction This publication explains the deduction of certain expenses of moving to a new home because you changed job locations or started a new job. Myfreetaxes It includes the following topics. Myfreetaxes Who can deduct moving expenses. Myfreetaxes What moving expenses are deductible. Myfreetaxes What moving expenses are not deductible. Myfreetaxes How a reimbursement affects your moving expense deduction. Myfreetaxes How and when to report moving expenses. Myfreetaxes Special rules for members of the Armed Forces. Myfreetaxes Form 3903, Moving Expenses, is used to claim the moving expense deduction. Myfreetaxes An example of how to report your moving expenses, including a filled-in Form 3903, is shown near the end of the publication. Myfreetaxes You may be able to deduct moving expenses whether you are self-employed or an employee. Myfreetaxes Your expenses generally must be related to starting work at your new job location. Myfreetaxes However, certain retirees and survivors may qualify to claim the deduction even though they are not starting work at a new job location. Myfreetaxes See Who Can Deduct Moving Expenses. Myfreetaxes Recordkeeping. Myfreetaxes    It is important to maintain an accurate record of expenses you paid to move. Myfreetaxes You should save items such as receipts, bills, cancelled checks, credit card statements, and mileage logs. Myfreetaxes Also, you should save your Form W-2 and statements of reimbursement from your employer. Myfreetaxes Comments and suggestions. Myfreetaxes   We welcome your comments about this publication and your suggestions for future editions. Myfreetaxes   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Myfreetaxes NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Myfreetaxes Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Myfreetaxes   You can send your comments from www. Myfreetaxes irs. Myfreetaxes gov/formspubs/. Myfreetaxes Click on “More Information” and then on “Comment on Tax Forms and Publications”. Myfreetaxes   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Myfreetaxes Ordering forms and publications. Myfreetaxes   Visit www. Myfreetaxes irs. Myfreetaxes gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Myfreetaxes Internal Revenue Service 1201 N. Myfreetaxes Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Myfreetaxes   If you have a tax question, check the information available on IRS. Myfreetaxes gov or call 1-800-829-1040. Myfreetaxes We cannot answer tax questions sent to either of the above addresses. Myfreetaxes Useful Items - You may want to see: Publication 3 Armed Forces' Tax Guide Forms (and Instructions) 1040 U. Myfreetaxes S. Myfreetaxes Individual Income Tax Return 1040X Amended U. Myfreetaxes S. Myfreetaxes Individual Income Tax Return 3903 Moving Expenses 8822 Change of Address 8822–B Change of Address or Responsible Party-Business See How To Get Tax Help, near the end of this publication, for information about getting the publications and the forms listed above. Myfreetaxes Prev  Up  Next   Home   More Online Publications