Corporate Income Tax Deductions
Help Questions
CPA Regulation (REG) › Corporate Income Tax Deductions
Rohr, a C corporation, owns 18% of Alda Corporation. Alda paid a $3,000 cash dividend to Rohr. What is the amount of Rorh’s dividends-received deduction?
$0
$1,500
$1,950
$3,000
Explanation
For the dividends-received deduction (DRD), less than 20% ownership results in a 50% deduction, so Rohr gets a DRD of $1,500 (50% of the $3,000 dividend received).
For year 19, Fallon Corp., an accrual basis calendar-year C corporation, had an $8,000 unexpired charitable contribution carryover from year 18. Fallon’s Year 19 taxable income before the deduction for charitable contributions was $200,000. On December 15, year 19, Fallon’s board of directors authorized a $15,000 cash contribution to a qualified charity, which was made on January 8, Year 20. What is the maximum allowable deduction that Fallon may take as a charitable contribution on its Year 19 tax return?
$23,000
$15,000
$8,000
$20,000
Explanation
C corporations may deduct up to 10% of their gross income before deductions, so Fallon has a maximum of $20,000 it may deduct. Fallon’s board authorized a transfer of $15,000 cash prior to the end of the tax year, and companies are allowed to deduct accrued contributions if paid within 3 ½ months after year-end, meaning they may take the entire $15,000. Fallon also had an $8,000 carryover from the prior year, and corporations may carryover excess charitable contributions for up to five years after the contribution was made. As a result, Fallon can also take an additional $5,000 from the carryover amount and apply that to the Year 19 tax year, for the maximum deduction of $20,000.
Rohr, a C corporation, owns 18% of Alda Corporation. Alda paid a $3,000 cash dividend to Rohr. What is the amount of Rorh’s dividends-received deduction?
$0
$1,500
$1,950
$3,000
Explanation
For the dividends-received deduction (DRD), less than 20% ownership results in a 50% deduction, so Rohr gets a DRD of $1,500 (50% of the $3,000 dividend received).
The Dividends Received Deduction applies to:
A C Corporation in the United States
Individuals in the United States
A company in France
All of the above
Explanation
Of the following choices, only a C Corporation in the United States would be applicable for the DRD under current US tax law.
The corporate dividends received deduction:
Is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period
Is unaffected by the percentage of the investee’s stock owned by the investor corporation
May be claimed by an S corporation
Must exceed the applicable percentage of the recipient shareholder’s taxable income
Explanation
The corporate DRD is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period of more than 45 days.
The Dividends Received Deduction applies to:
A C Corporation in the United States
Individuals in the United States
A company in France
All of the above
Explanation
Of the following choices, only a C Corporation in the United States would be applicable for the DRD under current US tax law.
The corporate dividends received deduction:
Is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period
Is unaffected by the percentage of the investee’s stock owned by the investor corporation
May be claimed by an S corporation
Must exceed the applicable percentage of the recipient shareholder’s taxable income
Explanation
The corporate DRD is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period of more than 45 days.
Funnie, Inc. manufactures consumer products and sells them to distributors. Funnie advertises its products to increase sales and enhance the value of its trade name. What is the appropriate treatment for the advertising costs?
Amortize the costs over 60 months
Amortize the costs over 15 years
Deduct the costs currently as ordinary and necessary business expenses
Amortize the costs over 36 months
Explanation
Advertising expenses are treated as those incurred in the normal course of business, and for tax purposes are expensed in the period the costs are incurred. There is no amortization of these costs.
For year 19, Fallon Corp., an accrual basis calendar-year C corporation, had an $8,000 unexpired charitable contribution carryover from year 18. Fallon’s Year 19 taxable income before the deduction for charitable contributions was $200,000. On December 15, year 19, Fallon’s board of directors authorized a $15,000 cash contribution to a qualified charity, which was made on January 8, Year 20. What is the maximum allowable deduction that Fallon may take as a charitable contribution on its Year 19 tax return?
$23,000
$15,000
$8,000
$20,000
Explanation
C corporations may deduct up to 10% of their gross income before deductions, so Fallon has a maximum of $20,000 it may deduct. Fallon’s board authorized a transfer of $15,000 cash prior to the end of the tax year, and companies are allowed to deduct accrued contributions if paid within 3 ½ months after year-end, meaning they may take the entire $15,000. Fallon also had an $8,000 carryover from the prior year, and corporations may carryover excess charitable contributions for up to five years after the contribution was made. As a result, Fallon can also take an additional $5,000 from the carryover amount and apply that to the Year 19 tax year, for the maximum deduction of $20,000.
Funnie, Inc. manufactures consumer products and sells them to distributors. Funnie advertises its products to increase sales and enhance the value of its trade name. What is the appropriate treatment for the advertising costs?
Amortize the costs over 60 months
Amortize the costs over 15 years
Deduct the costs currently as ordinary and necessary business expenses
Amortize the costs over 36 months
Explanation
Advertising expenses are treated as those incurred in the normal course of business, and for tax purposes are expensed in the period the costs are incurred. There is no amortization of these costs.