Some refresher terms

Can a c corporation use the cash method of accounting? Yes, if annual gross for any three year preceding period does not exceed $5 million.

What portion of a contract price is reportable as income under the percentage of completion method? Contract price x Costs incurred during the period/total estimated costs for the contract

What is the dividends received deduction? The amount of the dividends received deduction is based on the % of stock owned in the corporation by the receiving corporation. If 20% or less, 70% deduction, Btween 20 and 80% = 80% and if 80 or more, 100%.

  What is the accumulated earnings tax? A tax on retained earnings in excess of $250K of a C corporation.

  What are personal services corporations? Regular corporations operating in the professional fields of HALE: health, accounting, law and engineering. They have a flat rate of 35% income tax and are permited to use a cash basis of accounting.

  What is the personal holding company tax? The PHC tax applies if the corporation meets an ownership test (50% owned by 5 of fewer individuals; and a passive income test (60% of the corps ordinary gross income consists of personal holding company income, i.e, income from securities and other income producing property). The tax is a flat rate of 15% on undistributed income.

  What is section 1244 stock If at the time of forming a regular corp, the total capital contributions are less than $1 million, and stock is issued in exchange for money, there are favorable tax consequences. Up to $100K of a loss in the sale of such stock may be deducted as ordinary loss ($50K if tp is single).

  What is an S Corporation? An S corporation is a type regular corporation that has elected to be taxed as a partnership. Each shareholder is treated as a general partner. S corporations may be required to pay built in gains tax, LIFO recapture tax and excess net passive income tax. To terminate its existence, the S corp must be formally dissolved, or converted to a c corp. They can have no more than 100 shareholders.

  What is an LLC It is a hybrid business entity that combines limited liability and the pass through tax treatment associated with a general partnership. The LLC may choose how it wishes to be taxed.

  What is a business trust In a trust the business is held and managed for the benefit of persons who hold transferable certificates issued by the trustees indicating how the shares of the business are divided and owned.