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Hr Block 1040nr

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Hr Block 1040nr

Hr block 1040nr Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. Hr block 1040nr Employee-owners. Hr block 1040nr Other rules. Hr block 1040nr Other rules. Hr block 1040nr Property Exchanged for StockNonqualified preferred stock. Hr block 1040nr Liabilities. Hr block 1040nr Election to reduce basis. Hr block 1040nr Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. Hr block 1040nr S. Hr block 1040nr Real Property Interest Accounting MethodsSection 481(a) adjustment. Hr block 1040nr Accounting Periods Recordkeeping Income, Deductions, and Special ProvisionsCosts of Going Into Business Related Persons Income From Qualifying Shipping Activities Election to Expense Qualified Refinery Property Deduction to Comply With EPA Sulfur Regulations Energy-Efficient Commercial Building Property Deduction Corporate Preference Items Dividends-Received Deduction Extraordinary Dividends Below-Market Loans Charitable Contributions Capital Losses Net Operating Losses At-Risk Limits Passive Activity Limits Figuring TaxTax Rate Schedule Alternative Minimum Tax (AMT) Credits Recapture Taxes Accumulated Earnings Tax Distributions to ShareholdersMoney or Property Distributions Distributions of Stock or Stock Rights Constructive Distributions Reporting Dividends and Other Distributions How To Get Tax Help Businesses Taxed as Corporations The rules you must use to determine whether a business is taxed as a corporation changed for businesses formed after 1996. Hr block 1040nr Business formed before 1997. Hr block 1040nr   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. Hr block 1040nr Business formed after 1996. Hr block 1040nr   The following businesses formed after 1996 are taxed as corporations. Hr block 1040nr A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. Hr block 1040nr A business formed under a state law that refers to it as a joint-stock company or joint-stock association. Hr block 1040nr An insurance company. Hr block 1040nr Certain banks. Hr block 1040nr A business wholly owned by a state or local government. Hr block 1040nr A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). Hr block 1040nr Certain foreign businesses. Hr block 1040nr Any other business that elects to be taxed as a corporation. Hr block 1040nr For example, a limited liability company (LLC) can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election. Hr block 1040nr For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. Hr block 1040nr S corporations. Hr block 1040nr   Some corporations may meet the qualifications for electing to be S corporations. Hr block 1040nr For information on S corporations, see the instructions for Form 1120S, U. Hr block 1040nr S. Hr block 1040nr Income Tax Return for an S Corporation. Hr block 1040nr Personal service corporations. Hr block 1040nr   A corporation is a personal service corporation if it meets all of the following requirements. Hr block 1040nr Its principal activity during the “testing period” is performing personal services (defined later). Hr block 1040nr Generally, the testing period for any tax year is the prior tax year. Hr block 1040nr If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of: The last day of its tax year, or The last day of the calendar year in which its tax year begins. Hr block 1040nr Its employee-owners substantially perform the services in (1), above. Hr block 1040nr This requirement is met if more than 20% of the corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners. Hr block 1040nr Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. Hr block 1040nr Personal services. Hr block 1040nr   Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts. Hr block 1040nr Employee-owners. Hr block 1040nr   A person is an employee-owner of a personal service corporation if both of the following apply. Hr block 1040nr He or she is an employee of the corporation or performs personal services for, or on behalf of, the corporation (even if he or she is an independent contractor for other purposes) on any day of the testing period. Hr block 1040nr He or she owns any stock in the corporation at any time during the testing period. Hr block 1040nr Other rules. Hr block 1040nr   For other rules that apply to personal service corporations see Accounting Periods, later. Hr block 1040nr Closely held corporations. Hr block 1040nr   A corporation is closely held if all of the following apply. Hr block 1040nr It is not a personal service corporation. Hr block 1040nr At any time during the last half of the tax year, more than 50% of the value of its outstanding stock is, directly or indirectly, owned by or for five or fewer individuals. Hr block 1040nr “Individual” includes certain trusts and private foundations. Hr block 1040nr Other rules. Hr block 1040nr   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. Hr block 1040nr Property Exchanged for Stock If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock, described later), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. Hr block 1040nr This rule applies both to individuals and to groups who transfer property to a corporation. Hr block 1040nr It also applies whether the corporation is being formed or is already operating. Hr block 1040nr It does not apply in the following situations. Hr block 1040nr The corporation is an investment company. Hr block 1040nr You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. Hr block 1040nr The stock is received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt. Hr block 1040nr Both the corporation and any person involved in a nontaxable exchange of property for stock must attach to their income tax returns a complete statement of all facts pertinent to the exchange. Hr block 1040nr For more information, see section 1. Hr block 1040nr 351-3 of the Regulations. Hr block 1040nr Control of a corporation. Hr block 1040nr   To be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock. Hr block 1040nr Example 1. Hr block 1040nr You and Bill Jones buy property for $100,000. Hr block 1040nr You both organize a corporation when the property has a fair market value of $300,000. Hr block 1040nr You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. Hr block 1040nr No gain is recognized by you, Bill, or the corporation. Hr block 1040nr Example 2. Hr block 1040nr You and Bill transfer the property with a basis of $100,000 to a corporation in exchange for stock with a fair market value of $300,000. Hr block 1040nr This represents only 75% of each class of stock of the corporation. Hr block 1040nr The other 25% was already issued to someone else. Hr block 1040nr You and Bill recognize a taxable gain of $200,000 on the transaction. Hr block 1040nr Services rendered. Hr block 1040nr   The term property does not include services rendered or to be rendered to the issuing corporation. Hr block 1040nr The value of stock received for services is income to the recipient. Hr block 1040nr Example. Hr block 1040nr You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. Hr block 1040nr Right after the exchange, you own 85% of the outstanding stock. Hr block 1040nr No gain is recognized on the exchange of property. Hr block 1040nr However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. Hr block 1040nr Property of relatively small value. Hr block 1040nr   The term property does not include property of a relatively small value when it is compared to the value of stock and securities already owned or to be received for services by the transferor if the main purpose of the transfer is to qualify for the nonrecognition of gain or loss by other transferors. Hr block 1040nr   Property transferred will not be considered to be of relatively small value if its fair market value is at least 10% of the fair market value of the stock and securities already owned or to be received for services by the transferor. Hr block 1040nr Stock received in disproportion to property transferred. Hr block 1040nr   If a group of transferors exchange property for corporate stock, each transferor does not have to receive stock in proportion to his or her interest in the property transferred. Hr block 1040nr If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. Hr block 1040nr It may be treated as if the stock were first received in proportion and then some of it used to make gifts, pay compensation for services, or satisfy the transferor's obligations. Hr block 1040nr Money or other property received. Hr block 1040nr   If, in an otherwise nontaxable exchange of property for corporate stock, you also receive money or property other than stock, you may have to recognize gain. Hr block 1040nr You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. Hr block 1040nr The rules for figuring the recognized gain in this situation generally follow those for a partially nontaxable exchange discussed in Publication 544 under Like-Kind Exchanges. Hr block 1040nr If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. Hr block 1040nr See chapter 3 of Publication 544. Hr block 1040nr No loss is recognized. Hr block 1040nr Nonqualified preferred stock. Hr block 1040nr   Nonqualified preferred stock is treated as property other than stock. Hr block 1040nr Generally, it is preferred stock with any of the following features. Hr block 1040nr The holder has the right to require the issuer or a related person to redeem or buy the stock. Hr block 1040nr The issuer or a related person is required to redeem or buy the stock. Hr block 1040nr The issuer or a related person has the right to redeem or buy the stock and, on the issue date, it is more likely than not that the right will be exercised. Hr block 1040nr The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. Hr block 1040nr For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. Hr block 1040nr Liabilities. Hr block 1040nr   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. Hr block 1040nr There are two exceptions to this treatment. Hr block 1040nr If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. Hr block 1040nr However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. Hr block 1040nr If there is no good business reason for the corporation to assume your liabilities, or if your main purpose in the exchange is to avoid federal income tax, the assumption is treated as if you received money in the amount of the liabilities. Hr block 1040nr For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. Hr block 1040nr Example. Hr block 1040nr You transfer property to a corporation for stock. Hr block 1040nr Immediately after the transfer, you control the corporation. Hr block 1040nr You also receive $10,000 in the exchange. Hr block 1040nr Your adjusted basis in the transferred property is $20,000. Hr block 1040nr The stock you receive has a fair market value (FMV) of $16,000. Hr block 1040nr The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. Hr block 1040nr Gain is realized as follows. Hr block 1040nr FMV of stock received $16,000 Cash received 10,000 Liability assumed by corporation 5,000 Total received $31,000 Minus: Adjusted basis of property transferred 20,000 Realized gain $11,000   The liability assumed is not treated as money or other property. Hr block 1040nr The recognized gain is limited to $10,000, the cash received. Hr block 1040nr Loss on exchange. Hr block 1040nr   If you have a loss from an exchange and own, directly or indirectly, more than 50% of the corporation's stock, you cannot deduct the loss. Hr block 1040nr For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Hr block 1040nr Basis of stock or other property received. Hr block 1040nr   The basis of the stock you receive is generally the adjusted basis of the property you transfer. Hr block 1040nr Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. Hr block 1040nr Decrease this amount by any cash you received, the fair market value of any other property you received, and any loss recognized on the exchange. Hr block 1040nr Also decrease this amount by the amount of any liability the corporation or another party to the exchange assumed from you, unless payment of the liability gives rise to a deduction when paid. Hr block 1040nr    Further decreases may be required when the corporation or another party to the exchange assumes from you a liability that gives rise to a deduction when paid, if the basis of the stock would otherwise be higher than its fair market value on the date of the exchange. Hr block 1040nr This rule does not apply if the entity assuming the liability acquired either substantially all of the assets or the trade or business with which the liability is associated. Hr block 1040nr The basis of any other property you receive is its fair market value on the date of the trade. Hr block 1040nr Basis of property transferred. Hr block 1040nr   A corporation that receives property from you in exchange for its stock generally has the same basis you had in the property, increased by any gain you recognized on the exchange. Hr block 1040nr However, the increase for the gain recognized may be limited. Hr block 1040nr For more information, see section 362 of the Internal Revenue Code. Hr block 1040nr Election to reduce basis. Hr block 1040nr   In a section 351 transaction, if the adjusted basis of the property transferred exceeds the property's fair market value, the transferor and transferee may make an irrevocable election to treat the basis of the stock received by the transferor as having a basis equal to the fair market value of the property transferred. Hr block 1040nr The transferor and transferee make this election by attaching a statement to their tax returns filed by the due date (including extensions) for the tax year in which the transaction occurred. Hr block 1040nr However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. Hr block 1040nr R. Hr block 1040nr B. Hr block 1040nr 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. Hr block 1040nr    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. Hr block 1040nr Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. Hr block 1040nr Paid-in capital. Hr block 1040nr   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. Hr block 1040nr These contributions are not taxable to the corporation. Hr block 1040nr Basis. Hr block 1040nr   The corporation's basis of property contributed to capital by a shareholder is the same as the basis the shareholder had in the property, increased by any gain the shareholder recognized on the exchange. Hr block 1040nr However, the increase for the gain recognized may be limited. Hr block 1040nr For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. Hr block 1040nr   The basis of property contributed to capital by a person other than a shareholder is zero. Hr block 1040nr   If a corporation receives a cash contribution from a person other than a shareholder, the corporation must reduce the basis of any property acquired with the contribution during the 12-month period beginning on the day it received the contribution by the amount of the contribution. Hr block 1040nr If the amount contributed is more than the cost of the property acquired, then reduce, but not below zero, the basis of the other properties held by the corporation on the last day of the 12-month period in the following order. Hr block 1040nr Depreciable property. Hr block 1040nr Amortizable property. Hr block 1040nr Property subject to cost depletion but not to percentage depletion. Hr block 1040nr All other remaining properties. Hr block 1040nr   Reduce the basis of property in each category to zero before going on to the next category. Hr block 1040nr   There may be more than one piece of property in each category. Hr block 1040nr Base the reduction of the basis of each property on the following ratio:   Basis of each piece of property   Bases of all properties (within that category) If the corporation wishes to make this adjustment in some other way, it must get IRS approval. Hr block 1040nr The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. Hr block 1040nr Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. Hr block 1040nr A corporation generally must make estimated tax payments as it earns or receives income during its tax year. Hr block 1040nr After the end of the year, the corporation must file an income tax return. Hr block 1040nr This section will help you determine when and how to pay and file corporate income taxes. Hr block 1040nr For certain corporations affected by Presidentially declared disasters such as hurricanes, the due dates for filing returns, paying taxes, and performing other time-sensitive acts may be extended. Hr block 1040nr The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. Hr block 1040nr For more information, visit www. Hr block 1040nr irs. Hr block 1040nr gov/newsroom/article/0,,id=108362. Hr block 1040nr 00. Hr block 1040nr Income Tax Return This section will help you determine when and how to report a corporation's income tax. Hr block 1040nr Who must file. Hr block 1040nr   Unless exempt under section 501 of the Internal Revenue Code, all domestic corporations in existence for any part of a tax year (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. Hr block 1040nr Which form to file. Hr block 1040nr   A corporation generally must file Form 1120, U. Hr block 1040nr S. Hr block 1040nr Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. Hr block 1040nr Certain organizations and entities must file special returns. Hr block 1040nr For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. Hr block 1040nr Electronic filing. Hr block 1040nr   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. Hr block 1040nr Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. Hr block 1040nr However, in certain instances, these corporations can request a waiver. Hr block 1040nr For more information regarding electronic filing, visit www. Hr block 1040nr irs. Hr block 1040nr gov/efile. Hr block 1040nr When to file. Hr block 1040nr   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. Hr block 1040nr A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. Hr block 1040nr A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. Hr block 1040nr Example 1. Hr block 1040nr A corporation's tax year ends December 31. Hr block 1040nr It must file its income tax return by March 15th. Hr block 1040nr Example 2. Hr block 1040nr A corporation's tax year ends June 30. Hr block 1040nr It must file its income tax return by September 15th. Hr block 1040nr   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. Hr block 1040nr Extension of time to file. Hr block 1040nr   File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, to request an extension of time to file a corporation income tax return. Hr block 1040nr The IRS will grant the extension if you complete the form properly, file it, and pay any tax due by the original due date for the return. Hr block 1040nr   Form 7004 does not extend the time for paying the tax due on the return. Hr block 1040nr Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. Hr block 1040nr The interest is figured from the original due date of the return to the date of payment. Hr block 1040nr   For more information, see the instructions for Form 7004. Hr block 1040nr How to pay your taxes. Hr block 1040nr   A corporation must pay its tax due in full no later than the 15th day of the 3rd month after the end of its tax year. Hr block 1040nr Electronic Federal Tax Payment System (EFTPS). Hr block 1040nr   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). Hr block 1040nr For more information on EFTPS and enrollment, visit www. Hr block 1040nr eftps. Hr block 1040nr gov or call 1-800-555-4477. Hr block 1040nr Also see Publication 966, The Secure Way to Pay Your Federal Taxes. Hr block 1040nr Note. Hr block 1040nr Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. Hr block 1040nr Penalties Generally, if the corporation receives a notice about interest and penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. Hr block 1040nr Do not attach an explanation when the corporation's return is filed. Hr block 1040nr See the instructions for your income tax return. Hr block 1040nr Late filing of return. Hr block 1040nr    A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. Hr block 1040nr If the corporation is charged a penalty for late payment of tax (discussed next) for the same period of time, the penalty for late filing is reduced by the amount of the penalty for late payment. Hr block 1040nr The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. Hr block 1040nr The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. Hr block 1040nr Late payment of tax. Hr block 1040nr    A corporation that does not pay the tax when due may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. Hr block 1040nr The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. Hr block 1040nr Trust fund recovery penalty. Hr block 1040nr   If income, social security, and Medicare taxes that a corporation must withhold from employee wages are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. Hr block 1040nr The penalty is the full amount of the unpaid trust fund tax. Hr block 1040nr This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. Hr block 1040nr   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. Hr block 1040nr   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. Hr block 1040nr A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. Hr block 1040nr   Willfully means voluntarily, consciously, and intentionally. Hr block 1040nr A responsible person acts willfully if the person knows the required actions are not taking place. Hr block 1040nr   For more information on withholding and paying these taxes, see Publication 15 (Circular E), Employer's Tax Guide, and Publication 51, (Circular A), Agricultural Employer's Tax Guide. Hr block 1040nr Other penalties. Hr block 1040nr   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. Hr block 1040nr See sections 6662, 6662A, and 6663 of the Internal Revenue Code. Hr block 1040nr Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. Hr block 1040nr If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. Hr block 1040nr This section will explain how to avoid this penalty. Hr block 1040nr When to pay estimated tax. Hr block 1040nr   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. Hr block 1040nr Example 1. Hr block 1040nr Your corporation's tax year ends December 31. Hr block 1040nr Installment payments are due on April 15, June 15, September 15, and December 15. Hr block 1040nr Example 2. Hr block 1040nr Your corporation's tax year ends June 30. Hr block 1040nr Installment payments are due on October 15, December 15, March 15, and June 15. Hr block 1040nr   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. Hr block 1040nr How to figure each required installment. Hr block 1040nr   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. Hr block 1040nr You will generally use one of the following two methods to figure each required installment. Hr block 1040nr You should use the method that yields the smallest installment payments. Hr block 1040nr Note. Hr block 1040nr In these discussions, “return” generally refers to the corporation's original return. Hr block 1040nr However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. Hr block 1040nr Method 1. Hr block 1040nr   Each required installment is 25% of the income tax the corporation will show on its return for the current year. Hr block 1040nr Method 2. Hr block 1040nr   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. Hr block 1040nr   To use Method 2: The corporation must have filed a return for the previous year, The return must have been for a full 12 months, and The return must have shown a positive tax liability (not zero). Hr block 1040nr Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. Hr block 1040nr   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. Hr block 1040nr Other methods. Hr block 1040nr   If a corporation's income is expected to vary during the year because, for example, its business is seasonal, it may be able to lower the amount of one or more required installments by using one or both of the following methods. Hr block 1040nr The annualized income installment method. Hr block 1040nr The adjusted seasonal installment method. Hr block 1040nr Use Schedule A of Form 1120-W to determine if using one or both of these methods will lower the amount of any required installments. Hr block 1040nr Refiguring required installments. Hr block 1040nr   If after the corporation figures and deposits its estimated tax it finds that its tax liability for the year will be more or less than originally estimated, it may have to refigure its required installments to see if an underpayment penalty may apply. Hr block 1040nr An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. Hr block 1040nr Underpayment penalty. Hr block 1040nr   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. Hr block 1040nr The penalty is figured separately for each installment due date. Hr block 1040nr The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. Hr block 1040nr This is true even if the corporation is due a refund when its return is filed. Hr block 1040nr Form 2220. Hr block 1040nr   Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. Hr block 1040nr   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. Hr block 1040nr The amount of the underpayment. Hr block 1040nr The period during which the underpayment was due and unpaid. Hr block 1040nr The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. Hr block 1040nr   A corporation generally does not have to file Form 2220 with its income tax return because the IRS will figure any penalty and bill the corporation. Hr block 1040nr However, even if the corporation does not owe a penalty, complete and attach the form to the corporation's tax return if any of the following apply. Hr block 1040nr The annualized income installment method was used to figure any required installment. Hr block 1040nr The adjusted seasonal installment method was used to figure any required installment. Hr block 1040nr The corporation is a large corporation figuring its first required installment based on the prior year's tax. Hr block 1040nr How to pay estimated tax. Hr block 1040nr   A corporation is generally required to use EFTPS to pay its taxes. Hr block 1040nr See Electronic Federal Tax Payment System (EFTPS), earlier. Hr block 1040nr Also see the Instructions for Form 1120-W. Hr block 1040nr Quick refund of overpayments. Hr block 1040nr   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. Hr block 1040nr Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund of an overpayment of estimated tax. Hr block 1040nr A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. Hr block 1040nr Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. Hr block 1040nr File Form 4466 before the 16th day of the 3rd month after the end of the tax year, but before the corporation files its income tax return. Hr block 1040nr Do not file Form 4466 before the end of the corporation's tax year. Hr block 1040nr An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. Hr block 1040nr The IRS will act on the form within 45 days from the date you file it. Hr block 1040nr U. Hr block 1040nr S. Hr block 1040nr Real Property Interest If a domestic corporation acquires a U. Hr block 1040nr S. Hr block 1040nr real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. Hr block 1040nr The amount paid includes cash, the fair market value of other property, and any assumed liability. Hr block 1040nr If a domestic corporation distributes a U. Hr block 1040nr S. Hr block 1040nr real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. Hr block 1040nr A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. Hr block 1040nr For more information, see section 1445 of the Internal Revenue Code; Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities; Form 8288, U. Hr block 1040nr S. Hr block 1040nr Withholding Tax Return for Dispositions by Foreign Persons of U. Hr block 1040nr S. Hr block 1040nr Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. Hr block 1040nr S. Hr block 1040nr Real Property Interests. Hr block 1040nr Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. Hr block 1040nr Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. Hr block 1040nr In all cases, the method used must clearly show taxable income. Hr block 1040nr Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. Hr block 1040nr Accrual method. Hr block 1040nr   Generally, a corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. Hr block 1040nr A corporation engaged in farming operations also must use the accrual method. Hr block 1040nr   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. Hr block 1040nr However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method for eligible trades or businesses and may account for inventoriable items as materials and supplies that are not incidental. Hr block 1040nr   Under the accrual method, an amount is includable in income when: All the events have occurred that fix the right to receive the income, which is the earliest of the date: The required performance takes place, Payment is due, or Payment is received; and The amount can be determined with reasonable accuracy. Hr block 1040nr   Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year when: All events that determine the liability have occurred, The amount of the liability can be figured with reasonable accuracy, and Economic performance takes place with respect to the expense. Hr block 1040nr   There are exceptions to the economic performance rule for certain items, including recurring expenses. Hr block 1040nr See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. Hr block 1040nr Nonaccrual experience method. Hr block 1040nr   Accrual method corporations are not required to maintain accruals for certain amounts from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; or The corporation's average annual gross receipts for the 3 prior tax years does not exceed $5 million. Hr block 1040nr   This provision does not apply if interest is required to be paid on the amount or if there is any penalty for failure to pay the amount timely. Hr block 1040nr Percentage of completion method. Hr block 1040nr   Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage of completion method described in section 460 of the Internal Revenue Code. Hr block 1040nr Mark-to-market accounting method. Hr block 1040nr   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. Hr block 1040nr Under this method any security held by a dealer as inventory must be included in inventory at its FMV. Hr block 1040nr Any security not held as inventory at the close of the tax year is treated as sold at its FMV on the last business day of the tax year. Hr block 1040nr Any gain or loss must be taken into account in determining gross income. Hr block 1040nr The gain or loss taken into account is treated as ordinary gain or loss. Hr block 1040nr   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. Hr block 1040nr Change in accounting method. Hr block 1040nr   A corporation can change its method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). Hr block 1040nr The corporation must file Form 3115, Application for Change in Accounting Method. Hr block 1040nr For more information, see Form 3115 and Publication 538. Hr block 1040nr Section 481(a) adjustment. Hr block 1040nr   The corporation may have to make an adjustment under section 481(a) of the Internal Revenue Code to prevent amounts of income or expense from being duplicated or omitted. Hr block 1040nr The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. Hr block 1040nr However, a corporation can elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. Hr block 1040nr The corporation must complete the appropriate lines of Form 3115 to make the election. Hr block 1040nr See the Instructions for Form 3115. Hr block 1040nr Accounting Periods A corporation must figure its taxable income on the basis of a tax year. Hr block 1040nr A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. Hr block 1040nr Generally, corporations can use either a calendar year or a fiscal year as its tax year. Hr block 1040nr Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. Hr block 1040nr For more information, see Publication 538. Hr block 1040nr Personal service corporation. Hr block 1040nr   A personal service corporation must use a calendar year as its tax year unless: It elects to use a 52–53 week tax year that ends with reference to the calendar year; It can establish a business purpose for a different tax year and obtains approval of the IRS. Hr block 1040nr See Form 1128, Application To Adopt, Change, or Retain a Tax Year, and Publication 538; or It elects under section 444 of the Internal Revenue Code to have a tax year other than a calendar year. Hr block 1040nr Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. Hr block 1040nr   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. Hr block 1040nr See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. Hr block 1040nr Change of tax year. Hr block 1040nr   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. Hr block 1040nr However, under certain conditions, a corporation can change its tax year without getting the consent. Hr block 1040nr For more information, see Form 1128 and Publication 538. Hr block 1040nr Recordkeeping A corporation should keep its records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Hr block 1040nr Usually records that support items of income, deductions, or credits on the return must be kept for 3 years from the date the return is due or filed, whichever is later. Hr block 1040nr Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property. Hr block 1040nr The corporation should keep copies of all filed returns. Hr block 1040nr They help in preparing future and amended returns and in the calculation of earnings and profits. Hr block 1040nr Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. Hr block 1040nr However, the following special provisions apply only to corporations. Hr block 1040nr Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. Hr block 1040nr However, a corporation can elect to deduct a limited amount of start-up or organizational costs. Hr block 1040nr Any costs not deducted can be amortized. Hr block 1040nr Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. Hr block 1040nr Organizational costs are the direct costs of creating the corporation. Hr block 1040nr For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. Hr block 1040nr Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. Hr block 1040nr Related Persons A corporation that uses an accrual method of accounting cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until the corporation makes the payment and the corresponding amount is includible in the related person's gross income. Hr block 1040nr Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. Hr block 1040nr If a deduction is denied, the rule will continue to apply even if the corporation's relationship with the person ends before the expense or interest is includible in the gross income of that person. Hr block 1040nr These rules also deny the deduction of losses on the sale or exchange of property between related persons. Hr block 1040nr Related persons. Hr block 1040nr   For purposes of this rule, the following persons are related to a corporation. Hr block 1040nr Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). Hr block 1040nr An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. Hr block 1040nr A trust fiduciary, when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. Hr block 1040nr An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Hr block 1040nr A partnership, if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. Hr block 1040nr Any employee-owner, if the corporation is a personal service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned by the employee-owner. Hr block 1040nr Ownership of stock. Hr block 1040nr   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. Hr block 1040nr Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being owned proportionately by or for its shareholders, partners, or beneficiaries. Hr block 1040nr An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. Hr block 1040nr Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. Hr block 1040nr Any individual owning (other than by applying (2), above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner. Hr block 1040nr To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. Hr block 1040nr But stock constructively owned by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or (3) to make another person the constructive owner of that stock. Hr block 1040nr Reallocation of income and deductions. Hr block 1040nr   Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly, or indirectly, by the same interests. Hr block 1040nr Complete liquidations. Hr block 1040nr   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. Hr block 1040nr More information. Hr block 1040nr   For more information about the related person rules, see Publication 544. Hr block 1040nr Income From Qualifying Shipping Activities A corporation may make an election to be taxed on its notional shipping income at the highest corporate tax rate. Hr block 1040nr If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. Hr block 1040nr Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. Hr block 1040nr A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. Hr block 1040nr A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. Hr block 1040nr For more information regarding the election, see Form 8902. Hr block 1040nr Election to Expense Qualified Refinery Property A corporation can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct 50% of the cost of qualified refinery property (defined in section 179C(c) of the Internal Revenue Code), placed in service before January 1, 2014. Hr block 1040nr The deduction is allowed for the year in which the property is placed in service. Hr block 1040nr A subchapter T cooperative can make an irrevocable election on its return by the due date (including extensions) to allocate this deduction to its owners based on their ownership interest. Hr block 1040nr For more information, see section 179C of the Internal Revenue Code and the related Regulations. Hr block 1040nr Deduction to Comply With EPA Sulfur Regulations A small business refiner can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct up to 75% of qualified costs paid or incurred to comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency (EPA). Hr block 1040nr A subchapter T cooperative can make an irrevocable election on its return filed by the due date (including extensions) to allocate the deduction to its owners based on their ownership interest. Hr block 1040nr For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. Hr block 1040nr Energy-Efficient Commercial Building Property Deduction A corporation can claim a deduction for costs associated with energy-efficient commercial building property, placed in service before January 1, 2014. Hr block 1040nr In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. Hr block 1040nr 1-2001 domestic building; The property must be either a part of the interior lighting system, the heating, cooling, ventilation and hot water system, or the building envelope (defined in section 179D(c)(1)(C) of the Internal Revenue Code); and The property must be installed as part of a plan to reduce the total annual energy and power costs of the building by 50% or more. Hr block 1040nr The deduction is limited to $1. Hr block 1040nr 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. Hr block 1040nr Other rules and limitations apply. Hr block 1040nr The corporation must reduce the basis of any property by any deduction taken. Hr block 1040nr The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. Hr block 1040nr For more information, see section 179D of the Internal Revenue Code. Hr block 1040nr Also see Notice 2006-52, 2006-26 I. Hr block 1040nr R. Hr block 1040nr B. Hr block 1040nr 1175, clarified and amplified by Notice 2008-40, 2008-14 I. Hr block 1040nr R. Hr block 1040nr B. Hr block 1040nr 725, and any successor. Hr block 1040nr Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. Hr block 1040nr These items are known as corporate preference items and they include the following. Hr block 1040nr Gain on the disposition of section 1250 property. Hr block 1040nr For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. Hr block 1040nr Percentage depletion for iron ore and coal (including lignite). Hr block 1040nr For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. Hr block 1040nr Amortization of pollution control facilities. Hr block 1040nr For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. Hr block 1040nr Mineral exploration and development costs. Hr block 1040nr For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. Hr block 1040nr For more information on corporate preference items, see section 291 of the Internal Revenue Code. Hr block 1040nr Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. Hr block 1040nr This section discusses the general rules that apply. Hr block 1040nr The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. Hr block 1040nr For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. Hr block 1040nr Dividends from domestic corporations. Hr block 1040nr   A corporation can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. Hr block 1040nr If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received. Hr block 1040nr Ownership. Hr block 1040nr   Determine ownership, for these rules, by the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) the receiving corporation owns. Hr block 1040nr Small business investment companies. Hr block 1040nr   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. Hr block 1040nr Dividends from regulated investment companies. Hr block 1040nr   Regulated investment company dividends received are subject to certain limits. Hr block 1040nr Capital gain dividends received from a regulated investment company do not qualify for the deduction. Hr block 1040nr For more information, see section 854 of the Internal Revenue Code. Hr block 1040nr No deduction allowed for certain dividends. Hr block 1040nr   Corporations cannot take a deduction for dividends received from the following entities. Hr block 1040nr A real estate investment trust (REIT). Hr block 1040nr A corporation exempt from tax under section 501 or 521 of the Internal Revenue Code either for the tax year of the distribution or the preceding tax year. Hr block 1040nr A corporation whose stock was held less than 46 days during the 91-day period beginning 45 days before the stock became ex-dividend with respect to the dividend. Hr block 1040nr Ex-dividend means the holder has no rights to the dividend. Hr block 1040nr A corporation whose preferred stock was held less than 91 days during the 181-day period beginning 90 days before the stock became ex-dividend with respect to the dividend if the dividends received are for a period or periods totaling more than 366 days. Hr block 1040nr Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Hr block 1040nr Dividends on deposits. Hr block 1040nr   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. Hr block 1040nr They do not qualify for this deduction. Hr block 1040nr Limit on deduction for dividends. Hr block 1040nr   The total deduction for dividends received or accrued is generally limited (in the following order) to: 80% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from 20%-owned corporations, then 70% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations). Hr block 1040nr Figuring the limit. Hr block 1040nr   In figuring the limit, determine taxable income without the following items. Hr block 1040nr The net operating loss deduction. Hr block 1040nr The domestic production activities deduction. Hr block 1040nr The deduction for dividends received. Hr block 1040nr Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). Hr block 1040nr Any capital loss carryback to the tax year. Hr block 1040nr Effect of net operating loss. Hr block 1040nr   If a corporation has a net operating loss (NOL) for a tax year, the limit of 80% (or 70%) of taxable income does not apply. Hr block 1040nr To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. Hr block 1040nr Example 1. Hr block 1040nr A corporation loses $25,000 from operations. Hr block 1040nr It receives $100,000 in dividends from a 20%-owned corporation. Hr block 1040nr Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. Hr block 1040nr If it claims the full dividends-received deduction of $80,000 ($100,000 × 80%) and combines it with an operations loss of $25,000, it will have an NOL of ($5,000). Hr block 1040nr Therefore, the 80% of taxable income limit does not apply. Hr block 1040nr The corporation can deduct the full $80,000. Hr block 1040nr Example 2. Hr block 1040nr Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. Hr block 1040nr Its taxable income is $85,000 before the deduction for dividends received. Hr block 1040nr After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. Hr block 1040nr Because the corporation will not have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 80% of its taxable income, or $68,000 ($85,000 × 80%). Hr block 1040nr Extraordinary Dividends If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must reduce its basis in the stock by the nontaxed part of the dividend. Hr block 1040nr The nontaxed part is any dividends-received deduction allowable for the dividends. Hr block 1040nr Extraordinary dividend. Hr block 1040nr   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. Hr block 1040nr The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. Hr block 1040nr Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. Hr block 1040nr Treat all dividends received that have ex-dividend dates within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock. Hr block 1040nr Disqualified preferred stock. Hr block 1040nr   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. Hr block 1040nr   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. Hr block 1040nr The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. Hr block 1040nr The issue price of the stock exceeds its liquidation rights or stated redemption price. Hr block 1040nr The stock is otherwise structured to avoid the rules for extraordinary dividends and to enable corporate shareholders to reduce tax through a combination of dividends-received deductions and loss on the disposition of the stock. Hr block 1040nr   These rules apply to stock issued after July 10, 1989, unless it was issued under a written binding contract in effect on that date, and thereafter, before the issuance of the stock. Hr block 1040nr More information. Hr block 1040nr   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. Hr block 1040nr Below-Market Loans If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest. Hr block 1040nr A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Hr block 1040nr A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received both the following: A loan in exchange for a note that requires payment of interest at the applicable federal rate, and An additional payment in an amount equal to the forgone interest. Hr block 1040nr Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. Hr block 1040nr Foregone interest. Hr block 1040nr   For any period, forgone interest is equal to: The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Hr block 1040nr See Below-market loans, in chapter 4 of Publication 535 for more information. Hr block 1040nr Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. Hr block 1040nr The contribution is deductible if made to, or for the use of, a qualified organization. Hr block 1040nr For more information on qualified organizations, see Publication 526, Charitable Contributions. Hr block 1040nr Also see, Exempt Organizations Select Check (EO Select Check) at www. Hr block 1040nr irs. Hr block 1040nr gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. Hr block 1040nr Note. Hr block 1040nr You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. Hr block 1040nr Cash method corporation. Hr block 1040nr   A corporation using the cash method of accounting deducts contributions in the tax year paid. Hr block 1040nr Accrual method corporation. Hr block 1040nr   A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the 15th day of the 3rd month after the close of that tax year. Hr block 1040nr Make the choice by reporting the contribution on the corporation's return for the tax year. Hr block 1040nr A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. Hr block 1040nr The declaration must include the date the resolution was adopted. Hr block 1040nr Limitations on deduction. Hr block 1040nr   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. Hr block 1040nr Figure taxable income for this purpose without the following. Hr block 1040nr The deduction for charitable contributions. Hr block 1040nr The dividends-received deduction. Hr block 1040nr The deduction allowed under section 249 of the Internal Revenue Code. Hr block 1040nr The domestic production activities deduction. Hr block 1040nr Any net operating loss carryback to the tax year. Hr block 1040nr Any capital loss carryback to the tax year. Hr block 1040nr Farmers and ranchers. Hr block 1040nr    Corporations that are farmers and ranchers should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit. Hr block 1040nr Carryover of excess contributions. Hr block 1040nr   You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. Hr block 1040nr You lose any excess not used within that period. Hr block 1040nr For example, if a corporation has a carryover of excess contributions paid in 2010 and it does not use all the excess on its return for 2011, it can carry any excess over to 2012, 2013, 2014, and 2015, if applicable. Hr block 1040nr Any excess not used in 2015 is lost. Hr block 1040nr Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). Hr block 1040nr You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. Hr block 1040nr Cash contributions. Hr block 1040nr   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. Hr block 1040nr The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. Hr block 1040nr Keep the record of the contribution with the other corporate records. Hr block 1040nr Do not attach the records to the corporation's return. Hr block 1040nr For more information on cash contributions, see Publication 526. Hr block 1040nr Gifts of $250 or more. Hr block 1040nr   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. Hr block 1040nr The acknowledgement should show the amount of cash contributed, a description of the property contributed, and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. Hr block 1040nr The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. Hr block 1040nr Keep the acknowledgement with other corporate records. Hr block 1040nr Do not attach the acknowledgement to the return. Hr block 1040nr Contributions of property other than cash. Hr block 1040nr   If a corporation (other than a closely-held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. Hr block 1040nr In addition the corporation should keep a record of: The approximate date and manner of acquisition of the donated property and The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution. Hr block 1040nr   Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. Hr block 1040nr For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return. Hr block 1040nr   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. Hr block 1040nr A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. Hr block 1040nr The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000; $20,000 for donated art work. Hr block 1040nr   See Form 8283 for more information. Hr block 1040nr Qualified conservation contributions. Hr block 1040nr   If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. Hr block 1040nr For more information, see section 170(h) of the Internal Revenue Code. Hr block 1040nr Contributions of used vehicles. Hr block 1040nr   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. Hr block 1040nr The deduction is limited, and other special rules apply. Hr block 1040nr For more information, see Publication 526. Hr block 1040nr Reduction for contributions of certain property. Hr block 1040nr   For a charitable contribution of property, the corporation must reduce the contribution by the sum of: The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV and For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV. Hr block 1040nr   The reduction for the long-term capital gain applies to: Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption; Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available; and Contributions of any patent, certain copyrights, trademark, trade name, trade secret, know-how, software (that is a section 197 intangible), or similar property, or applications or registrations of such property. Hr block 1040nr Larger deduction. Hr block 1040nr   A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus one-half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. Hr block 1040nr This deduction may be allowed for certain contributions of: Certain inventory and other property made to a donee organization and used solely for the care of the ill, the needy, and infants. Hr block 1040nr Scientific property constructed by the corporation (other than an S corporation, personal holding company, or personal service corporation) and donated no later than 2 years after substantial completion of the construction. Hr block 1040nr The property must be donated to a qualified organization and its original use must be by the donee for research, experimentation, or research training within the United States in the area of physical or biological science. Hr block 1040nr Computer technology and equipment acquired or constructed and donated no later than 3 years after either acquisition or substantial completion of construction to an educational organization for educational purposes within the United States. Hr block 1040nr Contributions to organizations conducting lobbying activities. Hr block 1040nr   Contributions made to an organization that conducts lobbying activities are not deductible if: The lobbying activities relate to matters of direct financial interest to the donor's trade or business and The principal purpose of the contribution was to avoid federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor. Hr block 1040nr More information. Hr block 1040nr   For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Publication 526. Hr block 1040nr Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. Hr block 1040nr In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. Hr block 1040nr Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. Hr block 1040nr A capital loss is carried to other years in the following order. Hr block 1040nr 3 years prior to the loss year. Hr block 1040nr 2 years prior to the loss year. Hr block 1040nr 1 year prior to the loss year. Hr block 1040nr Any loss remaining is carried forward for 5 years. Hr block 1040nr When you carry a net capital loss to another tax year, treat it as a short-term loss. Hr block 1040nr It does not retain its original identity as long term or short term. Hr block 1040nr Example. Hr block 1040nr A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. Hr block 1040nr The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. Hr block 1040nr The corporation treats this $6,000 as a short-term loss when carried back or forward. Hr block 1040nr The corporation carries the $6,000 short-term loss back 3 years. Hr block 1040nr In year 1, the corporation had a net short-term capital gain of $8,000 and a net long-term capital gain of $5,000. Hr block 1040nr It subtracts the $6,000 short-term loss first from the net short-term gain. Hr block 1040nr This results in a net capital gain for year 1 of $7,000. Hr block 1040nr This consists of a net short-term capital gain of $2,000 ($8,000 − $6,000) and a net long-term capital gain of $5,000. Hr block 1040nr S corporation status. Hr block 1040nr   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. Hr block 1040nr Rules for carryover and carryback. Hr block 1040nr   When carrying a capital loss from one year to another, the following rules apply. Hr block 1040nr When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. Hr block 1040nr In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. Hr block 1040nr If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. Hr block 1040nr You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it back. Hr block 1040nr Refunds. Hr block 1040nr   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. Hr block 1040nr If your corrected tax is less than the tax you originally owed, use either Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U. Hr block 1040nr S. Hr block 1040nr Corporation Income Tax Return, to apply for a refund. Hr block 1040nr Form 1139. Hr block 1040nr    A corporation can get a refund faster by using Form 1139. Hr block 1040nr It cannot file Form 1139 before filing the return for the corporation's capital loss year, but it must file Form 1139 no later than 1 year after the year it sustains the capital loss. Hr block 1040nr Form 1120X. Hr block 1040nr   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. Hr block 1040nr The corporation must file the Form 1120X within 3 years of the due date, includin
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The Hr Block 1040nr

Hr block 1040nr Publication 969 - Introductory Material Table of Contents What's New Reminders IntroductionOrdering forms and publications. Hr block 1040nr Tax questions. Hr block 1040nr What's New Federal tax benefits for same-sex married couples. Hr block 1040nr   For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. Hr block 1040nr For more information, see Publication 501. Hr block 1040nr Health flexible spending arrangements (FSAs). Hr block 1040nr  The following rules apply to health FSAs for plan years beginning after December 31, 2012. Hr block 1040nr Salary reduction contributions to your health FSA cannot be more than $2,500 a year (indexed for inflation). Hr block 1040nr Your employer may choose to change your cafeteria plan to allow you to carry over up to $500 of unused amounts remaining at the end of the plan year in a health FSA to be paid or reimbursed for qualified medical expenses incurred during the following plan year. Hr block 1040nr For more information, see Balance in an FSA under Flexible Spending Arrangements (FSAs), later. Hr block 1040nr Reminders Future Developments. Hr block 1040nr  For the latest information about developments related to Publication 969, such as legislation enacted after it was published, go to www. Hr block 1040nr IRS. Hr block 1040nr gov/pub969. Hr block 1040nr Photographs of missing children. Hr block 1040nr  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Hr block 1040nr Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Hr block 1040nr You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Hr block 1040nr Introduction Various programs are designed to give individuals tax advantages to offset health care costs. Hr block 1040nr This publication explains the following programs. Hr block 1040nr Health savings accounts (HSAs). Hr block 1040nr Medical savings accounts (Archer MSAs and Medicare Advantage MSAs). Hr block 1040nr Health flexible spending arrangements (FSAs). Hr block 1040nr Health reimbursement arrangements (HRAs). Hr block 1040nr An HSA may receive contributions from an eligible individual or any other person, including an employer or a family member, on behalf of an eligible individual. Hr block 1040nr Contributions, other than employer contributions, are deductible on the eligible individual's return whether or not the individual itemizes deductions. Hr block 1040nr Employer contributions are not included in income. Hr block 1040nr Distributions from an HSA that are used to pay qualified medical expenses are not taxed. Hr block 1040nr An Archer MSA may receive contributions from an eligible individual and his or her employer, but not both in the same year. Hr block 1040nr Contributions by the individual are deductible whether or not the individual itemizes deductions. Hr block 1040nr Employer contributions are not included in income. Hr block 1040nr Distributions from an Archer MSA that are used to pay qualified medical expenses are not taxed. Hr block 1040nr A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder who is enrolled in Medicare. Hr block 1040nr Contributions can only be made by Medicare. Hr block 1040nr The contributions are not included in your income. Hr block 1040nr Distributions from a Medicare Advantage MSA that are used to pay qualified medical expenses are not taxed. Hr block 1040nr A health FSA may receive contributions from an eligible individual. Hr block 1040nr Employers may also contribute. Hr block 1040nr Contributions are not includible in income. Hr block 1040nr Reimbursements from an FSA that are used to pay qualified medical expenses are not taxed. Hr block 1040nr An HRA must receive contributions from the employer only. Hr block 1040nr Employees may not contribute. Hr block 1040nr Contributions are not includible in income. Hr block 1040nr Reimbursements from an HRA that are used to pay qualified medical expenses are not taxed. Hr block 1040nr Comments and suggestions. Hr block 1040nr   We welcome your comments about this publication and your suggestions for future editions. Hr block 1040nr   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Hr block 1040nr NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Hr block 1040nr Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Hr block 1040nr   You can send your comments from www. Hr block 1040nr irs. Hr block 1040nr gov/formspubs. Hr block 1040nr Click on “More Information” and then on “Comment on Tax Forms and Publications. Hr block 1040nr ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Hr block 1040nr Ordering forms and publications. Hr block 1040nr   Visit www. Hr block 1040nr irs. Hr block 1040nr gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Hr block 1040nr Internal Revenue Service 1201 N. Hr block 1040nr Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Hr block 1040nr   If you have a tax question, check the information available on IRS. Hr block 1040nr gov or call 1-800-829-1040. Hr block 1040nr We cannot answer tax questions sent to either of the above addresses. Hr block 1040nr Prev  Up  Next   Home   More Online Publications