About this video

• Video Title: Ch#15 Corporations
• Channel: Individual & Business Tax Prep {College Courses}
• Speakers: Not explicitly mentioned, but the transcript is a single narrative voice.
• Duration: 00:49:25

Overview

This video provides an overview of corporate taxation, focusing on C Corporations and briefly introducing S Corporations. It covers essential aspects such as corporate formation, filing requirements, basis calculations for both the corporation and shareholders, tax return components, dividends received deductions, organizational and startup expenses, tax rates, and estimated tax payments. The presenter uses examples to illustrate key concepts, drawing comparisons to partnership taxation where relevant.

Key takeaways

• Corporate Structure: Explains that corporations, specifically C Corps and S Corps, are a distinct business structure with complex tax implications, often more so than individual taxes.
• Formation and Filing: Details the initial steps for forming a corporation, including state filing, annual reports, and the importance of legal documentation like Articles of Incorporation and bylaws. It also touches on accounting methods (cash vs. accrual) and the due dates for corporate tax returns.
• Basis Calculations: Differentiates between the basis of stock in the hands of the shareholder (outside basis) and the basis of property in the hands of the corporation (inside basis), noting similarities to partnership rules.
• Taxable Income and Liability: Outlines the process of calculating a corporation's taxable income, starting from gross profit and subtracting various deductions, including special deductions like the Dividends Received Deduction (DRD).
• Specific Deductions and Rules: Covers capital gains and losses, charitable contributions (with limitations), and the DRD, explaining how owning a percentage of another company affects tax liability.
• Organizational and Startup Costs: Differentiates between organizational expenses (legal fees, state fees) and startup costs (ordinary operating expenses) and explains the rules for deducting them.
• S Corporations: Briefly introduces S Corporations as a structure designed to combine C Corp benefits with partnership taxation for smaller businesses, noting their unique filing requirements and shareholder limitations.

The Dividends Received Deduction (DRD) calculation depends on the percentage of ownership the recipient corporation has in the company paying the dividend:

• Less than 20% ownership: 70% deduction of the dividends received.
• 20% to less than 80% ownership: 80% deduction of the dividends received.
• 80% or more ownership: 100% deduction of the dividends received.

There is also a limitation: the DRD cannot exceed the taxable income of the corporation multiplied by the appropriate percentage (70%, 80%, or 100%). If the taxable income before the DRD is lower than the calculated dividend deduction, the deduction is limited to that taxable income multiplied by the corresponding percentage.

Corporations and individuals handle capital losses differently in several key ways:

• Deductibility of Net Capital Losses: Individuals can deduct a net capital loss against ordinary income up to $3,000 per year, with any excess carried forward. Corporations, however, are not permitted to deduct any net capital losses against ordinary income.
• Offsetting Gains: For corporations, capital losses can only offset capital gains. This means the net capital loss for a corporation cannot be negative; it must be either positive or zero.
• Carryback and Carryforward: Corporations can carry back excess capital losses for three years and carry them forward for five years. This is different from individuals, whose excess capital losses are carried forward indefinitely.
• Order of Application: Corporations must carry back losses before they can carry them forward. This involves amending prior tax returns if capital gains were present in those carryback years.

The video outlines the calculation of taxable income for a corporation as follows:

1. Total Sales - Cost of Goods Sold = Gross Profit
2. Gross Profit + All Other Types of Income = Total Income
3. Total Income - All Other Types of Expenses = Taxable Income Before Special Deductions
4. Taxable Income Before Special Deductions - Special Deductions (e.g., Net Operating Loss Deductions, Dividends Received Deduction) = Taxable Income