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Taxact 2008 Free Efile

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Taxact 2008 Free Efile

Taxact 2008 free efile 3. Taxact 2008 free efile   Credit for Withholding and Estimated Tax for 2013 Table of Contents Introduction Topics - This chapter discusses: WithholdingForm W-2 Form W-2G The 1099 Series Form Not Correct Form Received After Filing Separate Returns Fiscal Years (FY) Estimated TaxSeparate Returns Divorced Taxpayers Excess Social Security or Railroad Retirement Tax WithholdingJoint returns. Taxact 2008 free efile Worksheet for Nonrailroad Employees Worksheets for Railroad Employees Introduction When you file your 2013 income tax return, take credit for all the income tax and excess social security or railroad retirement tax withheld from your salary, wages, pensions, etc. Taxact 2008 free efile Also take credit for the estimated tax you paid for 2013. Taxact 2008 free efile These credits are subtracted from your total tax. Taxact 2008 free efile Because these credits are refundable, you should file a return and claim these credits, even if you do not owe tax. Taxact 2008 free efile If the total of your withholding and your estimated tax payments for any payment period is less than the amount you needed to pay by the due date for that period, you may be charged a penalty, even if the total of these credits is more than your tax for the year. Taxact 2008 free efile Topics - This chapter discusses: How to take credit for withholding, How to take credit for estimated taxes you paid, and How to take credit for excess social security, Medicare, or railroad retirement tax withholding. Taxact 2008 free efile Withholding If you had income tax withheld during 2013, you generally should be sent a statement by January 31, 2014, showing your income and the tax withheld. Taxact 2008 free efile Depending on the source of your income, you will receive: Form W-2, Wage and Tax Statement, Form W-2G, Certain Gambling Winnings, or A form in the 1099 series. Taxact 2008 free efile Form W-2 Your employer is required to provide or send Form W-2 to you no later than January 31, 2014. Taxact 2008 free efile You should receive a separate Form W-2 from each employer you worked for. Taxact 2008 free efile If you stopped working before the end of 2013, your employer could have given you your Form W-2 at any time after you stopped working. Taxact 2008 free efile However, your employer must provide or send it to you by January 31, 2014. Taxact 2008 free efile If you ask for the form, your employer must send it to you within 30 days after receiving your written request or within 30 days after your final wage payment, whichever is later. Taxact 2008 free efile If you have not received your Form W-2 by January 31, contact your employer or payer to request a copy. Taxact 2008 free efile If you still do not get the form by February 15, the IRS can help you by requesting the form from your employer. Taxact 2008 free efile The phone number for the IRS is listed in chapter 5. Taxact 2008 free efile You will be asked for the following information. Taxact 2008 free efile Your name, address, city and state, zip code, and social security number. Taxact 2008 free efile Your employer's name, address, city, state, zip code, and the employer's identification number (if known). Taxact 2008 free efile An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. Taxact 2008 free efile The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible. Taxact 2008 free efile Form W-2 shows your total pay and other compensation and the income tax, social security tax, and Medicare tax that was withheld during the year. Taxact 2008 free efile Total the federal income tax withheld (shown in box 2 of all Forms W-2 received) and enter that amount on the appropriate line of your tax return. Taxact 2008 free efile In addition, Form W-2 is used to report any taxable sick pay you received and any income tax withheld from your sick pay. Taxact 2008 free efile Your sick pay may be combined with other wages in one Form W-2 or you may receive a separate Form W-2 for sick pay. Taxact 2008 free efile If you file a paper tax return, attach Copy B of Form W-2 to your return. Taxact 2008 free efile Form W-2G If you had gambling winnings in 2013, the payer may have withheld income tax. Taxact 2008 free efile If tax was withheld, the payer will give you a Form W-2G showing the amount you won and the amount of tax withheld. Taxact 2008 free efile Report the amounts you won on line 21 of Form 1040. Taxact 2008 free efile Take credit for the tax withheld on line 62 of Form 1040. Taxact 2008 free efile If you had gambling winnings, you must use Form 1040; you cannot use Form 1040A or Form 1040EZ. Taxact 2008 free efile Gambling losses can be deducted on Schedule A (Form 1040) as a miscellaneous itemized deduction. Taxact 2008 free efile However, you cannot deduct more than the gambling winnings you report on Form 1040. Taxact 2008 free efile File Form W-2G with your income tax return only if it shows any federal income tax withheld in box 2. Taxact 2008 free efile The 1099 Series Most forms in the 1099 series are not filed with your return. Taxact 2008 free efile In general, these forms should be furnished to you by January 31, 2014. Taxact 2008 free efile Unless instructed to file any of these forms with your return, keep them for your records. Taxact 2008 free efile There are several different forms in this series, including: Form 1099-B, Proceeds From Broker and Barter Exchange Transactions; Form 1099-C, Cancellation of Debt; Form 1099-DIV, Dividends and Distributions; Form 1099-G, Certain Government Payments; Form 1099-INT, Interest Income; Form 1099-K, Payment Card and Third-Party Network Transactions; Form 1099-MISC, Miscellaneous Income; Form 1099-OID, Original Issue Discount; Form 1099-PATR, Taxable Distributions Received From Cooperatives; Form 1099-Q, Payments From Qualified Education Programs (Under Sections 529 and 530); Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Taxact 2008 free efile ; Form SSA-1099, Social Security Benefit Statement; and Form RRB-1099, Payments by the Railroad Retirement Board. Taxact 2008 free efile If you received the types of income reported on some forms in the 1099 series, you may not be able to use Form 1040A or Form 1040EZ. Taxact 2008 free efile See the instructions to these forms for details. Taxact 2008 free efile Reporting your withholding. Taxact 2008 free efile   Report on your tax return all federal income tax withholding shown on your Form 1099, Form SSA-1099, and/or Form RRB-1099. Taxact 2008 free efile Include the amount withheld in the total on line 62 of Form 1040, line 36 of Form 1040A, or line 7 of Form 1040EZ. Taxact 2008 free efile Form 1099-R. Taxact 2008 free efile   Attach Form 1099-R to your paper return if federal income tax withholding is shown in box 4. Taxact 2008 free efile Do not attach any other Form 1099. Taxact 2008 free efile Form Not Correct If you receive a form with incorrect information, you should ask the payer for a corrected form. Taxact 2008 free efile Call the telephone number or write to the address given for the payer on the form. Taxact 2008 free efile The corrected Form W-2G or Form 1099 you receive will have an “X” in the “CORRECTED” box at the top of the form. Taxact 2008 free efile A special form, Form W-2c, Corrected Wage and Tax Statement, is used to correct a Form W-2. Taxact 2008 free efile In certain situations, you will receive two forms in place of the original incorrect form. Taxact 2008 free efile This will happen when your taxpayer identification number is wrong or missing, your name and address are wrong, or you received the wrong type of form (for example, a Form 1099-DIV instead of a Form 1099-INT). Taxact 2008 free efile One new form you receive will be the same incorrect form or have the same incorrect information, but all money amounts will be zero. Taxact 2008 free efile This form will have an “X” in the “CORRECTED” box at the top of the form. Taxact 2008 free efile The second new form should have all the correct information, prepared as though it is the original (the “CORRECTED” box will not be checked). Taxact 2008 free efile Form Received After Filing If you file your return and you later receive a form for income that you did not include on your return, report the income and take credit for any income tax withheld by filing Form 1040X, Amended U. Taxact 2008 free efile S. Taxact 2008 free efile Individual Income Tax Return. Taxact 2008 free efile Separate Returns If you are married but file a separate return, you can take credit only for the tax withheld from your own income. Taxact 2008 free efile Do not include any amount withheld from your spouse's income. Taxact 2008 free efile However, different rules may apply if you live in a community property state. Taxact 2008 free efile Community property states. Taxact 2008 free efile   The following are community property states. Taxact 2008 free efile Arizona. Taxact 2008 free efile California. Taxact 2008 free efile Idaho. Taxact 2008 free efile Louisiana. Taxact 2008 free efile Nevada. Taxact 2008 free efile New Mexico. Taxact 2008 free efile Texas. Taxact 2008 free efile Washington. Taxact 2008 free efile Wisconsin. Taxact 2008 free efile Generally, if you live in a community property state and file a separate return, you and your spouse each must report half of all community income in addition to your own separate income. Taxact 2008 free efile If you are required to report half of all community income, you are entitled to take credit for half of all taxes withheld on the community income. Taxact 2008 free efile If you were divorced during the year, each of you generally must report half the community income and can take credit for half the withholding on that community income for the period before the divorce. Taxact 2008 free efile   For more information on these rules, and some exceptions, see Publication 555, Community Property. Taxact 2008 free efile Fiscal Years (FY) If you file your tax return on the basis of a fiscal year (a 12-month period ending on the last day of any month except December), you must follow special rules, described below, to determine your credit for federal income tax withholding. Taxact 2008 free efile Fiscal year withholding. Taxact 2008 free efile    You can claim credit on your tax return only for the tax withheld during the calendar year (CY) ending within your fiscal year. Taxact 2008 free efile You cannot claim credit for any of the tax withheld during the calendar year beginning in your fiscal year. Taxact 2008 free efile You will be able to claim credit for that withholding on your return for your next fiscal year. Taxact 2008 free efile   The Form W-2 or 1099 you receive for the calendar year that ends during your fiscal year will show the tax withheld and the income you received during that calendar year. Taxact 2008 free efile   Although you take credit for all the withheld tax shown on the form, report only the part of the income shown on the form that you received during your fiscal year. Taxact 2008 free efile Add to that the income you received during the rest of your fiscal year. Taxact 2008 free efile Example. Taxact 2008 free efile Miles Hanson files his return for a fiscal year ending June 30, 2013. Taxact 2008 free efile In January 2013, he received a Form W-2 that showed that his wages for 2012 were $31,200 and that his income tax withheld was $3,380. Taxact 2008 free efile His records show that he had received $15,000 of the wages by June 30, 2012, and $16,200 from July 1 through December 31, 2012. Taxact 2008 free efile See Table 3-1 . Taxact 2008 free efile On his return for the fiscal year ending June 30, 2013, Miles will report the $16,200 he was paid in July through December of 2012, plus the $18,850 he was paid during the rest of the fiscal year, January 1, 2013, through June 30, 2013. Taxact 2008 free efile However, he takes credit for all $3,380 that was withheld during 2012. Taxact 2008 free efile On his return for the fiscal year ending June 30, 2012, he reported the $15,000 he was paid in January through June 2012, but took no credit for the tax withheld during that time. Taxact 2008 free efile On his return for the fiscal year ending June 30, 2014, he will take the credit for any tax withheld during 2013 but not for any tax withheld during 2014. Taxact 2008 free efile Table 3-1. Taxact 2008 free efile Example for Fiscal Year Ending June 30, 2013—Miles Hanson Date Form W-2 Miles' records Tax return for FY ending 6/30/20121 Tax return for FY ending 6/30/2013 Wages With- holding Wages With- holding Wages With- holding Wages With- holding CY 20122 $31,200 $3,380             1/1/2012 –  6/30/2012     $15,000 $1,600 $15,000       7/1/2012 –  12/31/2012     $16,200 $1,780     $16,200 $3,380 CY 2013 $37,700 $4,316 3             1/1/2013 –  6/30/2013     $18,850 $2,158     $18,850   7/1/2013 –  12/31/2013     $18,850 4 $2,158         1Miles' tax return for FY ending 6/30/2012 also included his wages for 7/1–12/31/2011 and the withholding shown on his 2011 Form W-2. Taxact 2008 free efile  2Calendar year (January 1 – December 31). Taxact 2008 free efile   3Withholding shown on 2013 Form W-2 ($4,316) will be included in Miles' tax return for FY ending 6/30/2014, the fiscal year in which calendar year 2013 ends. Taxact 2008 free efile   4Wages for 7/1–12/31/2013 ($18,850) will be included in Miles' tax return for FY ending 6/30/2014, the fiscal year in which the wages were received. Taxact 2008 free efile Backup withholding. Taxact 2008 free efile   If income tax has been withheld under the backup withholding rule, take credit for it on your tax return for the fiscal year in which you received the income. Taxact 2008 free efile Example. Taxact 2008 free efile Emily Smith's records show that she received income in November 2013 and February 2014 from which there was backup withholding ($100 and $50, respectively). Taxact 2008 free efile Emily takes credit for the entire $150 of backup withholding on her tax return for the fiscal year ending September 30, 2014. Taxact 2008 free efile Estimated Tax Take credit for all your estimated tax payments for 2013 on line 63 of Form 1040 or line 37 of Form 1040A. Taxact 2008 free efile Include any overpayment from 2012 that you had credited to your 2013 estimated tax. Taxact 2008 free efile You must use Form 1040 or Form 1040A if you paid estimated tax. Taxact 2008 free efile You cannot file Form 1040EZ. Taxact 2008 free efile If you were a beneficiary of an estate or trust, you should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Taxact 2008 free efile , from the fiduciary. Taxact 2008 free efile If you have estimated taxes credited to you from the estate or trust (from Schedule K-1 (Form 1041)), you must report the estimated taxes on Schedule E (Form 1040). Taxact 2008 free efile On the dotted line next to the entry space for line 37 of Schedule E (Form 1040), enter “ES payment claimed” and the amount. Taxact 2008 free efile However, do not include this amount in the total on line 37. Taxact 2008 free efile Instead, enter the amount on Form 1040, line 63. Taxact 2008 free efile This estimated tax payment for 2013 is treated as being made by you on January 15, 2014. Taxact 2008 free efile Name changed. Taxact 2008 free efile   If you changed your name, and you made estimated tax payments using your former name, attach a statement to the front of your paper tax return indicating: When you made the payments, The amount of each payment, Your name when you made the payments, and The social security number under which you made the payments. Taxact 2008 free efile  The statement should cover payments you made jointly with your spouse as well as any you made separately. Taxact 2008 free efile   Be sure to report the change to your local Social Security Administration office before filing your 2014 tax return. Taxact 2008 free efile This prevents delays in processing your return and issuing refunds. Taxact 2008 free efile It also safeguards your future social security benefits. Taxact 2008 free efile For more information, call the Social Security Administration at 1-800-772-1213. Taxact 2008 free efile Separate Returns If you and your spouse made separate estimated tax payments for 2013 and you file separate returns, you can take credit only for your own payments. Taxact 2008 free efile If you made joint estimated tax payments, you must decide how to divide the payments between your returns. Taxact 2008 free efile One of you can claim all of the estimated tax paid and the other none, or you can divide it in any other way you agree on. Taxact 2008 free efile If you cannot agree, you must divide the payments in proportion to each spouse's individual tax as shown on your separate returns for 2013. Taxact 2008 free efile Example. Taxact 2008 free efile James and Evelyn Brown made joint estimated tax payments for 2013 totaling $3,000. Taxact 2008 free efile They file separate 2013 Forms 1040. Taxact 2008 free efile James' tax is $4,000 and Evelyn's is $1,000. Taxact 2008 free efile If they do not agree on how to divide the $3,000, they must divide it proportionately between their returns. Taxact 2008 free efile Because James' tax ($4,000) is 80% of the total tax ($5,000), his share of the estimated tax is $2,400 (80% of $3,000). Taxact 2008 free efile The balance, $600 (20% of $3,000), is Evelyn's share. Taxact 2008 free efile Divorced Taxpayers If you made joint estimated tax payments for 2013 and you were divorced during the year, either you or your former spouse can claim all of the joint payments, or you each can claim part of them. Taxact 2008 free efile If you cannot agree on how to divide the payments, you must divide them in proportion to each spouse's individual tax as shown on your separate returns for 2013. Taxact 2008 free efile See Example earlier under Separate Returns. Taxact 2008 free efile If you claim any of the joint payments on your tax return, enter your former spouse's social security number (SSN) in the space provided at the top of page 1 of Form 1040 or Form 1040A. Taxact 2008 free efile If you divorced and remarried in 2013, enter your present spouse's SSN in that space. Taxact 2008 free efile Enter your former spouse's SSN, followed by “DIV,” under Payments to the left of Form 1040, line 63, or in the blank space to the left of Form 1040A, line 37. Taxact 2008 free efile Excess Social Security or Railroad Retirement Tax Withholding Most employers must withhold social security tax from your wages. Taxact 2008 free efile In some cases, however, the federal government and state and local governments do not have to withhold social security tax from their employees' wages. Taxact 2008 free efile If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax. Taxact 2008 free efile Two or more employers. Taxact 2008 free efile   If you worked for two or more employers in 2013, too much social security tax or tier 1 RRTA tax may have been withheld from your pay. Taxact 2008 free efile You may be able to claim the excess as a credit against your income tax when you file your return. Taxact 2008 free efile Table 3-2 shows the maximum amount that should have been withheld for any of these taxes for 2013. Taxact 2008 free efile Figure the excess withholding on the appropriate worksheet. Taxact 2008 free efile    Table 3-2. Taxact 2008 free efile Maximum Social Security and RRTA Withholding for 2013 Type of tax Maximum wages subject to tax Tax rate Maximum tax to be withheld Social security $113,700 6. Taxact 2008 free efile 2% $7,049. Taxact 2008 free efile 40 Tier 1 RRTA $113,700 6. Taxact 2008 free efile 2% $7,049. Taxact 2008 free efile 40 Tier 2 RRTA $84,300 4. Taxact 2008 free efile 4% $3,709. Taxact 2008 free efile 20 Joint returns. Taxact 2008 free efile   If you are filing a joint return, you and your spouse must figure any excess social security or tier 1 RRTA separately. Taxact 2008 free efile Note. Taxact 2008 free efile All wages are subject to Medicare tax withholding. Taxact 2008 free efile Employer's error. Taxact 2008 free efile   If you had only one employer and he or she withheld too much social security, Medicare, or tier 1 RRTA tax, ask the employer to refund the excess amount to you. Taxact 2008 free efile If the employer refuses to refund the overcollection, ask for a statement indicating the amount of the overcollection to support your claim. Taxact 2008 free efile File a claim for refund using Form 843, Claim for Refund and Request for Abatement. Taxact 2008 free efile Worksheet for Nonrailroad Employees If you did not work for a railroad during 2013, figure the excess social security withholding on Worksheet 3-1. Taxact 2008 free efile Note. Taxact 2008 free efile If you worked for both a railroad employer and a nonrailroad employer, use Worksheet 3-2, to figure excess social security and tier 1 RRTA tax. Taxact 2008 free efile Where to claim credit for excess social security withholding. Taxact 2008 free efile   If you file Form 1040, enter the excess on line 69. Taxact 2008 free efile   If you file Form 1040A, include the excess in the total on line 41. Taxact 2008 free efile Write “Excess SST” and show the amount of the credit in the space to the left of the line. Taxact 2008 free efile   You cannot claim excess social security tax withholding on Form 1040EZ. Taxact 2008 free efile Worksheets for Railroad Employees If you worked for a railroad during 2013, figure your excess withholding on Worksheet 3-2 and 3-3, as appropriate. Taxact 2008 free efile Where to claim credit for excess tier 1 RRTA withholding. Taxact 2008 free efile   If you file Form 1040, enter the excess on line 69. Taxact 2008 free efile   If you file Form 1040A, include the excess in the total on line 41. Taxact 2008 free efile Write “Excess SST” and show the amount of the credit in the space to the left of the line. Taxact 2008 free efile   You cannot claim excess tier 1 RRTA withholding on Form 1040EZ. Taxact 2008 free efile How to claim refund of excess tier 2 RRTA. Taxact 2008 free efile   To claim a refund of tier 2 tax, use Form 843. Taxact 2008 free efile Be sure to attach a copy of all of your Forms W-2. Taxact 2008 free efile   See Worksheet 3-3 and the Instructions for Form 843, for more details. Taxact 2008 free efile Worksheet 3-1. Taxact 2008 free efile Excess Social Security—Nonrailroad Employees 1. Taxact 2008 free efile Add all social security tax withheld (but not more than  $7,049. Taxact 2008 free efile 40 for each employer). Taxact 2008 free efile This tax should be shown  in box 4 of your Forms W-2. Taxact 2008 free efile Enter the total here 1. Taxact 2008 free efile   2. Taxact 2008 free efile Enter any uncollected social security tax on tips or group-term life insurance on Form 1040, line 60, identified by “UT” 2. Taxact 2008 free efile   3. Taxact 2008 free efile Add lines 1 and 2. Taxact 2008 free efile If $7,049. Taxact 2008 free efile 40 or less, stop here. Taxact 2008 free efile You cannot claim the credit 3. Taxact 2008 free efile   4. Taxact 2008 free efile Social security limit 4. Taxact 2008 free efile $7,049. Taxact 2008 free efile 40 5. Taxact 2008 free efile Excess. Taxact 2008 free efile Subtract line 4 from line 3 5. Taxact 2008 free efile   Worksheet 3-2. Taxact 2008 free efile Excess Social Security and Tier 1 RRTA—Railroad Employees 1. Taxact 2008 free efile Add all social security and tier 1 RRTA tax withheld (but not more than $7,049. Taxact 2008 free efile 40 for each employer). Taxact 2008 free efile Social security tax should be shown in box 4 and tier 1 RRTA should be shown  in box 14 of your Forms W-2. Taxact 2008 free efile Enter the total here 1. Taxact 2008 free efile   2. Taxact 2008 free efile Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance on Form 1040, line 60, identified by “UT” 2. Taxact 2008 free efile   3. Taxact 2008 free efile Add lines 1 and 2. Taxact 2008 free efile If $7,049. Taxact 2008 free efile 40 or less, stop here. Taxact 2008 free efile You cannot claim the credit 3. Taxact 2008 free efile   4. Taxact 2008 free efile Social security and tier 1 RRTA tax limit 4. Taxact 2008 free efile $7,049. Taxact 2008 free efile 40 5. Taxact 2008 free efile Excess. Taxact 2008 free efile Subtract line 4 from line 3 5. Taxact 2008 free efile   Worksheet 3-3. Taxact 2008 free efile Excess Tier 2 RRTA—Railroad Employees 1. Taxact 2008 free efile Add all tier 2 RRTA tax withheld (but not more than $3,709. Taxact 2008 free efile 20 for each employer). Taxact 2008 free efile Box 14 of your Forms W-2 should show tier 2 RRTA tax. Taxact 2008 free efile Enter the total here 1. Taxact 2008 free efile   2. Taxact 2008 free efile Enter any uncollected tier 2 RRTA tax on tips or group-term life insurance on Form 1040, line 60, identified by “UT” 2. Taxact 2008 free efile   3. Taxact 2008 free efile Add lines 1 and 2. Taxact 2008 free efile If $3,709. Taxact 2008 free efile 20 or less, stop here. Taxact 2008 free efile You cannot claim the credit. Taxact 2008 free efile 3. Taxact 2008 free efile   4. Taxact 2008 free efile Tier 2 RRTA tax limit 4. Taxact 2008 free efile $3,709. Taxact 2008 free efile 20 5. Taxact 2008 free efile Excess. Taxact 2008 free efile Subtract line 4 from line 3. Taxact 2008 free efile 5. Taxact 2008 free efile   Prev  Up  Next   Home   More Online Publications
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Small claims courts resolve disputes over small amounts of money. While the maximum amount that can be claimed differs from state to state, court procedures are generally simple, inexpensive, quick and informal. Court fees are minimal, and you often get your filing fee back if you win your case. Typically, you will not need a lawyer-some states do not permit them. If you live in a state that allows lawyers and the party you are suing brings one, don't be intimidated. Most judges make allowances for consumers who appear without lawyers. Even though the court is informal, the judge's decision must be followed.

If you file a case and win, the losing party should give you what the court says you are owed without further action on your part. But some losers refuse to follow the court's decision. When this happens, you can go back to court and ask for the order to be enforced. Depending on local laws, law enforcement officials might sell a person's property or take money from a bank account or business cash register. If the person who owes the money receives a salary, the court might order an employer to garnish (deduct money from) each paycheck to pay you.

Check your local telephone book under the municipal, county or state government headings for small claims court offices. Ask the clerk how to use the small claims court. Before taking your own case to court, observe a small claims court session and ask the court if it has information that will help you prepare your presentation to the judge.

The Taxact 2008 Free Efile

Taxact 2008 free efile Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. Taxact 2008 free efile Employee-owners. Taxact 2008 free efile Other rules. Taxact 2008 free efile Other rules. Taxact 2008 free efile Property Exchanged for StockNonqualified preferred stock. Taxact 2008 free efile Liabilities. Taxact 2008 free efile Election to reduce basis. Taxact 2008 free efile Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. Taxact 2008 free efile S. Taxact 2008 free efile Real Property Interest Accounting MethodsSection 481(a) adjustment. Taxact 2008 free efile 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. Taxact 2008 free efile Business formed before 1997. Taxact 2008 free efile   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. Taxact 2008 free efile Business formed after 1996. Taxact 2008 free efile   The following businesses formed after 1996 are taxed as corporations. Taxact 2008 free efile A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. Taxact 2008 free efile A business formed under a state law that refers to it as a joint-stock company or joint-stock association. Taxact 2008 free efile An insurance company. Taxact 2008 free efile Certain banks. Taxact 2008 free efile A business wholly owned by a state or local government. Taxact 2008 free efile A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). Taxact 2008 free efile Certain foreign businesses. Taxact 2008 free efile Any other business that elects to be taxed as a corporation. Taxact 2008 free efile 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. Taxact 2008 free efile For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. Taxact 2008 free efile S corporations. Taxact 2008 free efile   Some corporations may meet the qualifications for electing to be S corporations. Taxact 2008 free efile For information on S corporations, see the instructions for Form 1120S, U. Taxact 2008 free efile S. Taxact 2008 free efile Income Tax Return for an S Corporation. Taxact 2008 free efile Personal service corporations. Taxact 2008 free efile   A corporation is a personal service corporation if it meets all of the following requirements. Taxact 2008 free efile Its principal activity during the “testing period” is performing personal services (defined later). Taxact 2008 free efile Generally, the testing period for any tax year is the prior tax year. Taxact 2008 free efile 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. Taxact 2008 free efile Its employee-owners substantially perform the services in (1), above. Taxact 2008 free efile 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. Taxact 2008 free efile Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. Taxact 2008 free efile Personal services. Taxact 2008 free efile   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. Taxact 2008 free efile Employee-owners. Taxact 2008 free efile   A person is an employee-owner of a personal service corporation if both of the following apply. Taxact 2008 free efile 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. Taxact 2008 free efile He or she owns any stock in the corporation at any time during the testing period. Taxact 2008 free efile Other rules. Taxact 2008 free efile   For other rules that apply to personal service corporations see Accounting Periods, later. Taxact 2008 free efile Closely held corporations. Taxact 2008 free efile   A corporation is closely held if all of the following apply. Taxact 2008 free efile It is not a personal service corporation. Taxact 2008 free efile 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. Taxact 2008 free efile “Individual” includes certain trusts and private foundations. Taxact 2008 free efile Other rules. Taxact 2008 free efile   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. Taxact 2008 free efile 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. Taxact 2008 free efile This rule applies both to individuals and to groups who transfer property to a corporation. Taxact 2008 free efile It also applies whether the corporation is being formed or is already operating. Taxact 2008 free efile It does not apply in the following situations. Taxact 2008 free efile The corporation is an investment company. Taxact 2008 free efile You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile For more information, see section 1. Taxact 2008 free efile 351-3 of the Regulations. Taxact 2008 free efile Control of a corporation. Taxact 2008 free efile   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. Taxact 2008 free efile Example 1. Taxact 2008 free efile You and Bill Jones buy property for $100,000. Taxact 2008 free efile You both organize a corporation when the property has a fair market value of $300,000. Taxact 2008 free efile You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. Taxact 2008 free efile No gain is recognized by you, Bill, or the corporation. Taxact 2008 free efile Example 2. Taxact 2008 free efile 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. Taxact 2008 free efile This represents only 75% of each class of stock of the corporation. Taxact 2008 free efile The other 25% was already issued to someone else. Taxact 2008 free efile You and Bill recognize a taxable gain of $200,000 on the transaction. Taxact 2008 free efile Services rendered. Taxact 2008 free efile   The term property does not include services rendered or to be rendered to the issuing corporation. Taxact 2008 free efile The value of stock received for services is income to the recipient. Taxact 2008 free efile Example. Taxact 2008 free efile You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. Taxact 2008 free efile Right after the exchange, you own 85% of the outstanding stock. Taxact 2008 free efile No gain is recognized on the exchange of property. Taxact 2008 free efile However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. Taxact 2008 free efile Property of relatively small value. Taxact 2008 free efile   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. Taxact 2008 free efile   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. Taxact 2008 free efile Stock received in disproportion to property transferred. Taxact 2008 free efile   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. Taxact 2008 free efile If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. Taxact 2008 free efile 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. Taxact 2008 free efile Money or other property received. Taxact 2008 free efile   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. Taxact 2008 free efile You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. Taxact 2008 free efile 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. Taxact 2008 free efile If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. Taxact 2008 free efile See chapter 3 of Publication 544. Taxact 2008 free efile No loss is recognized. Taxact 2008 free efile Nonqualified preferred stock. Taxact 2008 free efile   Nonqualified preferred stock is treated as property other than stock. Taxact 2008 free efile Generally, it is preferred stock with any of the following features. Taxact 2008 free efile The holder has the right to require the issuer or a related person to redeem or buy the stock. Taxact 2008 free efile The issuer or a related person is required to redeem or buy the stock. Taxact 2008 free efile 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. Taxact 2008 free efile The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. Taxact 2008 free efile For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. Taxact 2008 free efile Liabilities. Taxact 2008 free efile   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. Taxact 2008 free efile There are two exceptions to this treatment. Taxact 2008 free efile If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. Taxact 2008 free efile However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. Taxact 2008 free efile 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. Taxact 2008 free efile For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. Taxact 2008 free efile Example. Taxact 2008 free efile You transfer property to a corporation for stock. Taxact 2008 free efile Immediately after the transfer, you control the corporation. Taxact 2008 free efile You also receive $10,000 in the exchange. Taxact 2008 free efile Your adjusted basis in the transferred property is $20,000. Taxact 2008 free efile The stock you receive has a fair market value (FMV) of $16,000. Taxact 2008 free efile The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. Taxact 2008 free efile Gain is realized as follows. Taxact 2008 free efile 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. Taxact 2008 free efile The recognized gain is limited to $10,000, the cash received. Taxact 2008 free efile Loss on exchange. Taxact 2008 free efile   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. Taxact 2008 free efile For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Taxact 2008 free efile Basis of stock or other property received. Taxact 2008 free efile   The basis of the stock you receive is generally the adjusted basis of the property you transfer. Taxact 2008 free efile Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile    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. Taxact 2008 free efile 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. Taxact 2008 free efile The basis of any other property you receive is its fair market value on the date of the trade. Taxact 2008 free efile Basis of property transferred. Taxact 2008 free efile   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. Taxact 2008 free efile However, the increase for the gain recognized may be limited. Taxact 2008 free efile For more information, see section 362 of the Internal Revenue Code. Taxact 2008 free efile Election to reduce basis. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. Taxact 2008 free efile R. Taxact 2008 free efile B. Taxact 2008 free efile 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. Taxact 2008 free efile    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. Taxact 2008 free efile Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. Taxact 2008 free efile Paid-in capital. Taxact 2008 free efile   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. Taxact 2008 free efile These contributions are not taxable to the corporation. Taxact 2008 free efile Basis. Taxact 2008 free efile   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. Taxact 2008 free efile However, the increase for the gain recognized may be limited. Taxact 2008 free efile For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. Taxact 2008 free efile   The basis of property contributed to capital by a person other than a shareholder is zero. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile Depreciable property. Taxact 2008 free efile Amortizable property. Taxact 2008 free efile Property subject to cost depletion but not to percentage depletion. Taxact 2008 free efile All other remaining properties. Taxact 2008 free efile   Reduce the basis of property in each category to zero before going on to the next category. Taxact 2008 free efile   There may be more than one piece of property in each category. Taxact 2008 free efile 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. Taxact 2008 free efile The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. Taxact 2008 free efile Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. Taxact 2008 free efile A corporation generally must make estimated tax payments as it earns or receives income during its tax year. Taxact 2008 free efile After the end of the year, the corporation must file an income tax return. Taxact 2008 free efile This section will help you determine when and how to pay and file corporate income taxes. Taxact 2008 free efile 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. Taxact 2008 free efile The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. Taxact 2008 free efile For more information, visit www. Taxact 2008 free efile irs. Taxact 2008 free efile gov/newsroom/article/0,,id=108362. Taxact 2008 free efile 00. Taxact 2008 free efile Income Tax Return This section will help you determine when and how to report a corporation's income tax. Taxact 2008 free efile Who must file. Taxact 2008 free efile   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. Taxact 2008 free efile Which form to file. Taxact 2008 free efile   A corporation generally must file Form 1120, U. Taxact 2008 free efile S. Taxact 2008 free efile Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. Taxact 2008 free efile Certain organizations and entities must file special returns. Taxact 2008 free efile For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. Taxact 2008 free efile Electronic filing. Taxact 2008 free efile   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. Taxact 2008 free efile Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. Taxact 2008 free efile However, in certain instances, these corporations can request a waiver. Taxact 2008 free efile For more information regarding electronic filing, visit www. Taxact 2008 free efile irs. Taxact 2008 free efile gov/efile. Taxact 2008 free efile When to file. Taxact 2008 free efile   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. Taxact 2008 free efile A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. Taxact 2008 free efile A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. Taxact 2008 free efile Example 1. Taxact 2008 free efile A corporation's tax year ends December 31. Taxact 2008 free efile It must file its income tax return by March 15th. Taxact 2008 free efile Example 2. Taxact 2008 free efile A corporation's tax year ends June 30. Taxact 2008 free efile It must file its income tax return by September 15th. Taxact 2008 free efile   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. Taxact 2008 free efile Extension of time to file. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile   Form 7004 does not extend the time for paying the tax due on the return. Taxact 2008 free efile Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. Taxact 2008 free efile The interest is figured from the original due date of the return to the date of payment. Taxact 2008 free efile   For more information, see the instructions for Form 7004. Taxact 2008 free efile How to pay your taxes. Taxact 2008 free efile   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. Taxact 2008 free efile Electronic Federal Tax Payment System (EFTPS). Taxact 2008 free efile   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). Taxact 2008 free efile For more information on EFTPS and enrollment, visit www. Taxact 2008 free efile eftps. Taxact 2008 free efile gov or call 1-800-555-4477. Taxact 2008 free efile Also see Publication 966, The Secure Way to Pay Your Federal Taxes. Taxact 2008 free efile Note. Taxact 2008 free efile Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. Taxact 2008 free efile 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. Taxact 2008 free efile Do not attach an explanation when the corporation's return is filed. Taxact 2008 free efile See the instructions for your income tax return. Taxact 2008 free efile Late filing of return. Taxact 2008 free efile    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. Taxact 2008 free efile 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. Taxact 2008 free efile The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. Taxact 2008 free efile The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. Taxact 2008 free efile Late payment of tax. Taxact 2008 free efile    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. Taxact 2008 free efile The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. Taxact 2008 free efile Trust fund recovery penalty. Taxact 2008 free efile   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. Taxact 2008 free efile The penalty is the full amount of the unpaid trust fund tax. Taxact 2008 free efile This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. Taxact 2008 free efile   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. Taxact 2008 free efile   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. Taxact 2008 free efile A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. Taxact 2008 free efile   Willfully means voluntarily, consciously, and intentionally. Taxact 2008 free efile A responsible person acts willfully if the person knows the required actions are not taking place. Taxact 2008 free efile   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. Taxact 2008 free efile Other penalties. Taxact 2008 free efile   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. Taxact 2008 free efile See sections 6662, 6662A, and 6663 of the Internal Revenue Code. Taxact 2008 free efile Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. Taxact 2008 free efile If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. Taxact 2008 free efile This section will explain how to avoid this penalty. Taxact 2008 free efile When to pay estimated tax. Taxact 2008 free efile   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. Taxact 2008 free efile Example 1. Taxact 2008 free efile Your corporation's tax year ends December 31. Taxact 2008 free efile Installment payments are due on April 15, June 15, September 15, and December 15. Taxact 2008 free efile Example 2. Taxact 2008 free efile Your corporation's tax year ends June 30. Taxact 2008 free efile Installment payments are due on October 15, December 15, March 15, and June 15. Taxact 2008 free efile   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. Taxact 2008 free efile How to figure each required installment. Taxact 2008 free efile   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. Taxact 2008 free efile You will generally use one of the following two methods to figure each required installment. Taxact 2008 free efile You should use the method that yields the smallest installment payments. Taxact 2008 free efile Note. Taxact 2008 free efile In these discussions, “return” generally refers to the corporation's original return. Taxact 2008 free efile However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. Taxact 2008 free efile Method 1. Taxact 2008 free efile   Each required installment is 25% of the income tax the corporation will show on its return for the current year. Taxact 2008 free efile Method 2. Taxact 2008 free efile   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. Taxact 2008 free efile   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). Taxact 2008 free efile Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. Taxact 2008 free efile   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. Taxact 2008 free efile Other methods. Taxact 2008 free efile   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. Taxact 2008 free efile The annualized income installment method. Taxact 2008 free efile The adjusted seasonal installment method. Taxact 2008 free efile 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. Taxact 2008 free efile Refiguring required installments. Taxact 2008 free efile   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. Taxact 2008 free efile An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. Taxact 2008 free efile Underpayment penalty. Taxact 2008 free efile   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. Taxact 2008 free efile The penalty is figured separately for each installment due date. Taxact 2008 free efile The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. Taxact 2008 free efile This is true even if the corporation is due a refund when its return is filed. Taxact 2008 free efile Form 2220. Taxact 2008 free efile   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. Taxact 2008 free efile   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. Taxact 2008 free efile The amount of the underpayment. Taxact 2008 free efile The period during which the underpayment was due and unpaid. Taxact 2008 free efile The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile The annualized income installment method was used to figure any required installment. Taxact 2008 free efile The adjusted seasonal installment method was used to figure any required installment. Taxact 2008 free efile The corporation is a large corporation figuring its first required installment based on the prior year's tax. Taxact 2008 free efile How to pay estimated tax. Taxact 2008 free efile   A corporation is generally required to use EFTPS to pay its taxes. Taxact 2008 free efile See Electronic Federal Tax Payment System (EFTPS), earlier. Taxact 2008 free efile Also see the Instructions for Form 1120-W. Taxact 2008 free efile Quick refund of overpayments. Taxact 2008 free efile   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. Taxact 2008 free efile 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. Taxact 2008 free efile A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. Taxact 2008 free efile Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. Taxact 2008 free efile 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. Taxact 2008 free efile Do not file Form 4466 before the end of the corporation's tax year. Taxact 2008 free efile An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. Taxact 2008 free efile The IRS will act on the form within 45 days from the date you file it. Taxact 2008 free efile U. Taxact 2008 free efile S. Taxact 2008 free efile Real Property Interest If a domestic corporation acquires a U. Taxact 2008 free efile S. Taxact 2008 free efile real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. Taxact 2008 free efile The amount paid includes cash, the fair market value of other property, and any assumed liability. Taxact 2008 free efile If a domestic corporation distributes a U. Taxact 2008 free efile S. Taxact 2008 free efile real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. Taxact 2008 free efile A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. Taxact 2008 free efile 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. Taxact 2008 free efile S. Taxact 2008 free efile Withholding Tax Return for Dispositions by Foreign Persons of U. Taxact 2008 free efile S. Taxact 2008 free efile Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. Taxact 2008 free efile S. Taxact 2008 free efile Real Property Interests. Taxact 2008 free efile Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. Taxact 2008 free efile Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. Taxact 2008 free efile In all cases, the method used must clearly show taxable income. Taxact 2008 free efile Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. Taxact 2008 free efile Accrual method. Taxact 2008 free efile   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. Taxact 2008 free efile A corporation engaged in farming operations also must use the accrual method. Taxact 2008 free efile   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. Taxact 2008 free efile 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. Taxact 2008 free efile   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. Taxact 2008 free efile   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. Taxact 2008 free efile   There are exceptions to the economic performance rule for certain items, including recurring expenses. Taxact 2008 free efile See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. Taxact 2008 free efile Nonaccrual experience method. Taxact 2008 free efile   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. Taxact 2008 free efile   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. Taxact 2008 free efile Percentage of completion method. Taxact 2008 free efile   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. Taxact 2008 free efile Mark-to-market accounting method. Taxact 2008 free efile   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. Taxact 2008 free efile Under this method any security held by a dealer as inventory must be included in inventory at its FMV. Taxact 2008 free efile 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. Taxact 2008 free efile Any gain or loss must be taken into account in determining gross income. Taxact 2008 free efile The gain or loss taken into account is treated as ordinary gain or loss. Taxact 2008 free efile   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. Taxact 2008 free efile Change in accounting method. Taxact 2008 free efile   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). Taxact 2008 free efile The corporation must file Form 3115, Application for Change in Accounting Method. Taxact 2008 free efile For more information, see Form 3115 and Publication 538. Taxact 2008 free efile Section 481(a) adjustment. Taxact 2008 free efile   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. Taxact 2008 free efile The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. Taxact 2008 free efile 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. Taxact 2008 free efile The corporation must complete the appropriate lines of Form 3115 to make the election. Taxact 2008 free efile See the Instructions for Form 3115. Taxact 2008 free efile Accounting Periods A corporation must figure its taxable income on the basis of a tax year. Taxact 2008 free efile A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. Taxact 2008 free efile Generally, corporations can use either a calendar year or a fiscal year as its tax year. Taxact 2008 free efile Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. Taxact 2008 free efile For more information, see Publication 538. Taxact 2008 free efile Personal service corporation. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. Taxact 2008 free efile   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. Taxact 2008 free efile See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. Taxact 2008 free efile Change of tax year. Taxact 2008 free efile   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. Taxact 2008 free efile However, under certain conditions, a corporation can change its tax year without getting the consent. Taxact 2008 free efile For more information, see Form 1128 and Publication 538. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile The corporation should keep copies of all filed returns. Taxact 2008 free efile They help in preparing future and amended returns and in the calculation of earnings and profits. Taxact 2008 free efile Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. Taxact 2008 free efile However, the following special provisions apply only to corporations. Taxact 2008 free efile Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. Taxact 2008 free efile However, a corporation can elect to deduct a limited amount of start-up or organizational costs. Taxact 2008 free efile Any costs not deducted can be amortized. Taxact 2008 free efile Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. Taxact 2008 free efile Organizational costs are the direct costs of creating the corporation. Taxact 2008 free efile For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. Taxact 2008 free efile Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. Taxact 2008 free efile 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. Taxact 2008 free efile Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. Taxact 2008 free efile 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. Taxact 2008 free efile These rules also deny the deduction of losses on the sale or exchange of property between related persons. Taxact 2008 free efile Related persons. Taxact 2008 free efile   For purposes of this rule, the following persons are related to a corporation. Taxact 2008 free efile Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). Taxact 2008 free efile An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. Taxact 2008 free efile 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. Taxact 2008 free efile An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile Ownership of stock. Taxact 2008 free efile   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. Taxact 2008 free efile 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. Taxact 2008 free efile An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. Taxact 2008 free efile Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. Taxact 2008 free efile 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. Taxact 2008 free efile To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. Taxact 2008 free efile 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. Taxact 2008 free efile Reallocation of income and deductions. Taxact 2008 free efile   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. Taxact 2008 free efile Complete liquidations. Taxact 2008 free efile   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. Taxact 2008 free efile More information. Taxact 2008 free efile   For more information about the related person rules, see Publication 544. Taxact 2008 free efile 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. Taxact 2008 free efile If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. Taxact 2008 free efile Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. Taxact 2008 free efile A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. Taxact 2008 free efile A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. Taxact 2008 free efile For more information regarding the election, see Form 8902. Taxact 2008 free efile 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. Taxact 2008 free efile The deduction is allowed for the year in which the property is placed in service. Taxact 2008 free efile 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. Taxact 2008 free efile For more information, see section 179C of the Internal Revenue Code and the related Regulations. Taxact 2008 free efile 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). Taxact 2008 free efile 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. Taxact 2008 free efile For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. Taxact 2008 free efile 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. Taxact 2008 free efile In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. Taxact 2008 free efile 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. Taxact 2008 free efile The deduction is limited to $1. Taxact 2008 free efile 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. Taxact 2008 free efile Other rules and limitations apply. Taxact 2008 free efile The corporation must reduce the basis of any property by any deduction taken. Taxact 2008 free efile The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. Taxact 2008 free efile For more information, see section 179D of the Internal Revenue Code. Taxact 2008 free efile Also see Notice 2006-52, 2006-26 I. Taxact 2008 free efile R. Taxact 2008 free efile B. Taxact 2008 free efile 1175, clarified and amplified by Notice 2008-40, 2008-14 I. Taxact 2008 free efile R. Taxact 2008 free efile B. Taxact 2008 free efile 725, and any successor. Taxact 2008 free efile Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. Taxact 2008 free efile These items are known as corporate preference items and they include the following. Taxact 2008 free efile Gain on the disposition of section 1250 property. Taxact 2008 free efile For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. Taxact 2008 free efile Percentage depletion for iron ore and coal (including lignite). Taxact 2008 free efile For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. Taxact 2008 free efile Amortization of pollution control facilities. Taxact 2008 free efile For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. Taxact 2008 free efile Mineral exploration and development costs. Taxact 2008 free efile For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. Taxact 2008 free efile For more information on corporate preference items, see section 291 of the Internal Revenue Code. Taxact 2008 free efile Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. Taxact 2008 free efile This section discusses the general rules that apply. Taxact 2008 free efile The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. Taxact 2008 free efile For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. Taxact 2008 free efile Dividends from domestic corporations. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile Ownership. Taxact 2008 free efile   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. Taxact 2008 free efile Small business investment companies. Taxact 2008 free efile   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. Taxact 2008 free efile Dividends from regulated investment companies. Taxact 2008 free efile   Regulated investment company dividends received are subject to certain limits. Taxact 2008 free efile Capital gain dividends received from a regulated investment company do not qualify for the deduction. Taxact 2008 free efile For more information, see section 854 of the Internal Revenue Code. Taxact 2008 free efile No deduction allowed for certain dividends. Taxact 2008 free efile   Corporations cannot take a deduction for dividends received from the following entities. Taxact 2008 free efile A real estate investment trust (REIT). Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile Ex-dividend means the holder has no rights to the dividend. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile Dividends on deposits. Taxact 2008 free efile   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. Taxact 2008 free efile They do not qualify for this deduction. Taxact 2008 free efile Limit on deduction for dividends. Taxact 2008 free efile   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). Taxact 2008 free efile Figuring the limit. Taxact 2008 free efile   In figuring the limit, determine taxable income without the following items. Taxact 2008 free efile The net operating loss deduction. Taxact 2008 free efile The domestic production activities deduction. Taxact 2008 free efile The deduction for dividends received. Taxact 2008 free efile Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). Taxact 2008 free efile Any capital loss carryback to the tax year. Taxact 2008 free efile Effect of net operating loss. Taxact 2008 free efile   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. Taxact 2008 free efile To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. Taxact 2008 free efile Example 1. Taxact 2008 free efile A corporation loses $25,000 from operations. Taxact 2008 free efile It receives $100,000 in dividends from a 20%-owned corporation. Taxact 2008 free efile Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. Taxact 2008 free efile 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). Taxact 2008 free efile Therefore, the 80% of taxable income limit does not apply. Taxact 2008 free efile The corporation can deduct the full $80,000. Taxact 2008 free efile Example 2. Taxact 2008 free efile Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. Taxact 2008 free efile Its taxable income is $85,000 before the deduction for dividends received. Taxact 2008 free efile After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. Taxact 2008 free efile 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%). Taxact 2008 free efile 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. Taxact 2008 free efile The nontaxed part is any dividends-received deduction allowable for the dividends. Taxact 2008 free efile Extraordinary dividend. Taxact 2008 free efile   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. Taxact 2008 free efile The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. Taxact 2008 free efile Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. Taxact 2008 free efile 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. Taxact 2008 free efile Disqualified preferred stock. Taxact 2008 free efile   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. Taxact 2008 free efile   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. Taxact 2008 free efile The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. Taxact 2008 free efile The issue price of the stock exceeds its liquidation rights or stated redemption price. Taxact 2008 free efile 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. Taxact 2008 free efile   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. Taxact 2008 free efile More information. Taxact 2008 free efile   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. Taxact 2008 free efile Foregone interest. Taxact 2008 free efile   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. Taxact 2008 free efile See Below-market loans, in chapter 4 of Publication 535 for more information. Taxact 2008 free efile Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. Taxact 2008 free efile The contribution is deductible if made to, or for the use of, a qualified organization. Taxact 2008 free efile For more information on qualified organizations, see Publication 526, Charitable Contributions. Taxact 2008 free efile Also see, Exempt Organizations Select Check (EO Select Check) at www. Taxact 2008 free efile irs. Taxact 2008 free efile gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. Taxact 2008 free efile Note. Taxact 2008 free efile You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. Taxact 2008 free efile Cash method corporation. Taxact 2008 free efile   A corporation using the cash method of accounting deducts contributions in the tax year paid. Taxact 2008 free efile Accrual method corporation. Taxact 2008 free efile   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. Taxact 2008 free efile Make the choice by reporting the contribution on the corporation's return for the tax year. Taxact 2008 free efile A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. Taxact 2008 free efile The declaration must include the date the resolution was adopted. Taxact 2008 free efile Limitations on deduction. Taxact 2008 free efile   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. Taxact 2008 free efile Figure taxable income for this purpose without the following. Taxact 2008 free efile The deduction for charitable contributions. Taxact 2008 free efile The dividends-received deduction. Taxact 2008 free efile The deduction allowed under section 249 of the Internal Revenue Code. Taxact 2008 free efile The domestic production activities deduction. Taxact 2008 free efile Any net operating loss carryback to the tax year. Taxact 2008 free efile Any capital loss carryback to the tax year. Taxact 2008 free efile Farmers and ranchers. Taxact 2008 free efile    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. Taxact 2008 free efile Carryover of excess contributions. Taxact 2008 free efile   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. Taxact 2008 free efile You lose any excess not used within that period. Taxact 2008 free efile 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. Taxact 2008 free efile Any excess not used in 2015 is lost. Taxact 2008 free efile 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). Taxact 2008 free efile You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. Taxact 2008 free efile Cash contributions. Taxact 2008 free efile   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. Taxact 2008 free efile 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. Taxact 2008 free efile Keep the record of the contribution with the other corporate records. Taxact 2008 free efile Do not attach the records to the corporation's return. Taxact 2008 free efile For more information on cash contributions, see Publication 526. Taxact 2008 free efile Gifts of $250 or more. Taxact 2008 free efile   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. Taxact 2008 free efile 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. Taxact 2008 free efile The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. Taxact 2008 free efile Keep the acknowledgement with other corporate records. Taxact 2008 free efile Do not attach the acknowledgement to the return. Taxact 2008 free efile Contributions of property other than cash. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile   See Form 8283 for more information. Taxact 2008 free efile Qualified conservation contributions. Taxact 2008 free efile   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. Taxact 2008 free efile For more information, see section 170(h) of the Internal Revenue Code. Taxact 2008 free efile Contributions of used vehicles. Taxact 2008 free efile   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. Taxact 2008 free efile The deduction is limited, and other special rules apply. Taxact 2008 free efile For more information, see Publication 526. Taxact 2008 free efile Reduction for contributions of certain property. Taxact 2008 free efile   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. Taxact 2008 free efile   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. Taxact 2008 free efile Larger deduction. Taxact 2008 free efile   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. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile 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. Taxact 2008 free efile Contributions to organizations conducting lobbying activities. Taxact 2008 free efile   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. Taxact 2008 free efile More information. Taxact 2008 free efile   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. Taxact 2008 free efile Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. Taxact 2008 free efile In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. Taxact 2008 free efile Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. Taxact 2008 free efile A capital loss is carried to other years in the following order. Taxact 2008 free efile 3 years prior to the loss year. Taxact 2008 free efile 2 years prior to the loss year. Taxact 2008 free efile 1 year prior to the loss year. Taxact 2008 free efile Any loss remaining is carried forward for 5 years. Taxact 2008 free efile When you carry a net capital loss to another tax year, treat it as a short-term loss. Taxact 2008 free efile It does not retain its original identity as long term or short term. Taxact 2008 free efile Example. Taxact 2008 free efile A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. Taxact 2008 free efile The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. Taxact 2008 free efile The corporation treats this $6,000 as a short-term loss when carried back or forward. Taxact 2008 free efile The corporation carries the $6,000 short-term loss back 3 years. Taxact 2008 free efile 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. Taxact 2008 free efile It subtracts the $6,000 short-term loss first from the net short-term gain. Taxact 2008 free efile This results in a net capital gain for year 1 of $7,000. Taxact 2008 free efile 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. Taxact 2008 free efile S corporation status. Taxact 2008 free efile   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. Taxact 2008 free efile Rules for carryover and carryback. Taxact 2008 free efile   When carrying a capital loss from one year to another, the following rules apply. Taxact 2008 free efile When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. Taxact 2008 free efile In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. Taxact 2008 free efile If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. Taxact 2008 free efile 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. Taxact 2008 free efile Refunds. Taxact 2008 free efile   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. Taxact 2008 free efile 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. Taxact 2008 free efile S. Taxact 2008 free efile Corporation Income Tax Return, to apply for a refund. Taxact 2008 free efile Form 1139. Taxact 2008 free efile    A corporation can get a refund faster by using Form 1139. Taxact 2008 free efile 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. Taxact 2008 free efile Form 1120X. Taxact 2008 free efile   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. Taxact 2008 free efile The corporation must file the Form 1120X within 3 years of the due date, includin