Corporate Income Tax Rates

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					Corporate Income Tax
   Steve Foulks
In comparison to Individual Income
        Tax Computation
 Similar, but simpler than the individual
 income tax
 Definitions of revenues and expenses are
 the same
 Corporations do not have exemptions and
 itemized deductions
 All expenses are business (code section
 162) expenses
 Tax rate is essentially flat
Unique corporate deductions
Organization and startup
costs – amortized over no
less than 180 months, if
positively elected
Dividends received deduction
Charitable contribution
• DRD equals (X%) of dividends received,
  except where there is a loss from operations,
• (1-X%) times the dividends received is
  greater than the loss from operations
• In this case, the DRD is (X%) of taxable
  income excluding the DRD, any NOL, or
  capital loss carryback deductions
• 70 percent where the stock ownership is less than
  20 percent
• 80 percent where stock ownership is between 20
  and 80 percent
• Always 100 percent of the dividends received, for
  members of an affiliated group.
Not available when:
There was not stock ownership for 45 days
 during the 90 day period which begins 45 days
 before the stock goes ex dividend
  Assume each month has 30 days and the stock goes
   ex dividend on June 1, when is the 90 day period?
Debt is used to purchase stock (the T Boone
 Picken’s rule)
Charitable Contributions differences
  Deduction limited to 10% of corporate
   taxable income excluding
   – Any NOL and capital loss carryback
   – The DRD, and
   – The charitable contribution deduction
  Deduction may be taken when accrued if
   – Paid within 3 ½ months after the end of the
     year and authorized by the Board of Directors
Charitable Contributions differences
 There exists a special rule for contributions
  of ordinary income property
   which is used for the care of the ill, needy or
    infants, or
   scientific research property used by
    universities and tax-exempt scientific research
    organizations (two year creation rule) (Apple
     Computer rule)
       Deduction = Adjusted Basis (AB) plus 50% of
        appreciation, limited to 200% of AB
Simple to calculate
o   Equals negative taxable income for the year
o   Carries back two years (optional), and
    forward 20 years
o   If the whole NOL is not usable in the year
    carried to, the negative taxable income
    resulting from its application in the year,
    becomes the carryforward to the next year!
Corporate tax rates
   Despite the tax rate table, corporate tax
    rates are essentially flat –
       34 percent for medium sized corporations
       35 percent for large corporations (and PSC’s)
   The complicated appearance of the table is
    due to the fact that corporations must give
    back the benefits of the lower rates as they
    get larger
Affiliated (controlled) group types

              Brother / Sister (B-S)

              Parent / Sub. (P-S)
              Combination of the above
Brother Sister group
   A B-S affilitated group exists if 5 or fewer
    shareholders (entities):
       own at least 50% (80% in some cases) of the
        stock of 2 or more corporations,
       and have a combined 50% common ownership
            Common ownership is the lowest (but more than
             0) % ownership that an owner has in the group of
             companies that are being considered for a (B-S)
Parent Subsidiary group
   A P-S group exists if one corporation owns
    at 80 % of the stock in another corporation
   Other corporations will be part of this group
    if they are 80% owned by other members
    (in combination) of the P-S group
Consequences of Controlled group
All fixed dollar
 parameters must be
 split among members of
 the group (50% B/S
Should Corporations pay income taxes?
   Who benefits?
   Who loses?

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