Corporate Tax

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LO1 - Corporate Taxable Income Formula * Corps. compute gross income as do other types of business entities * Are allowed to deduct ordinary and necessary business expenditures * Don’t itemize deductions (No need for standard deductions) * No personal or dependency exemptions * Exist to generate income through business activities * Nearly all corporate expenditures create either current or future tax deductions * Corporate taxable income formula is relatively straight forward * Accounting Periods and Methods * Corporations measure their taxable income over a tax year and that their tax year must be the same as their financial accounting year * Generally elect their tax year when they file their first…show more content…
However, they are not allowed to deduct federal income tax expense for tax purposes. * Common Temporary Book-Tax Differences – caused by difference in accounting methods * Depreciation expense (Favorable) - Difference between depreciation expense * Bad debt expense (Unfavorable) – direct write-off method for tax purposes, allowance method for book purposes * Unearned rent revenue (Unfavorable) – rent revenue is taxable on receipt, but recognized when earned for book purposes. * Deferred compensation (unfavorable) – deductible when accrued for book purposes, but deductible when paid for tax purposes if accrued but not paid for 2.5 months after year-end. Also, accrued compensation to shareholders owning more than 50% of the corporation is not deductible until paid. * Organizational expenses and start-up costs (Unfavorable) immediately deducted for book purposes but capitalized and amortized for tax purposes (limited immediate expensing allowed for tax). * Warranty expense and other estimated expenses (Unfavorable) – estimated expenses deducted for book purposes, but actual expenses deducted for tax purposes * UNICAP (S 263A) (Unfavorable) – certain expenditures deducted for book purposes, but capitalized to inventory for tax purposes. Difference reverses when inventory is

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