2012 Corporate Tax Rate Schedule (partial) Taxable Income Greater Than But Less
ID: 2328275 • Letter: 2
Question
2012 Corporate Tax Rate Schedule (partial)
Taxable Income Greater Than
But Less Than Or Equal To
Tax Is
Of the amount exceeding
$0
$50,000
15%
$0
$50,000
$75,000
$7,500 + 25%
$50,000
$75,000
$100,000
$13,750 + 34%
$75,000
$100,000
$335,000
$22,250 + 39%
$100,000
JKEB Corporation has the following revenues and expenses for the current tax year:
Sales revenue, net of returns . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000
Dividend Income (less than 20% owned investees) . . . . . . . . . . 25,000
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Normal business expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
1. What is JKEB Corporation’s dividends-received deduction for the current tax year?
2. Assuming that JKEB Corporation’s normal business expenses were $82,000 instead of $40,000, compute its dividends-received deduction for the current tax year.
JKEB Corporation incurred the following capital gains and losses in tax year 2012:
Short Term Capital Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,000
Short Term Capital Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,000)
Long Term Capital Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Long Term Capital Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,000)
JKEB’s prior corporate tax returns reflect the following net capital gain/ (loss):
2008 - $6,000 gain
2009—$8,000 gain
2010—($3,000) loss
2011—$1,000 gain
3. Calculate the net capital gain (loss) for 2012. How is this reported on the 2012 Form 1120?
4. Calculate the amount of capital loss carryback (if any) to tax years 2008 through 2011 inclusive.
5. Calculate the amount of capital loss carryforward (if any) to 2013. How will this loss be treated in 2013 (i.e., as a short-term or long-term capital loss)?
JKEB Corporation had the following items during its 2012 tax year:
Net income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150,000
Dividends received (from less than 20% owned investees). . . . . . . . . . . 10,000
Charitable contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Net operating loss carryover from 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Long-term capital gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Long-term capital losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Short-term capital gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Capital loss carryover from 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
Tax Credit………………………………………………………………… 4,500
6. Compute JKEB Corporation’s 2012 taxable income and income tax liability before tax credits.
7. What are the nature and amount of any carryovers to 2013?
8. What is the taxable amount due after using the tax credit?
2012 Corporate Tax Rate Schedule (partial)
Taxable Income Greater Than
But Less Than Or Equal To
Tax Is
Of the amount exceeding
$0
$50,000
15%
$0
$50,000
$75,000
$7,500 + 25%
$50,000
$75,000
$100,000
$13,750 + 34%
$75,000
$100,000
$335,000
$22,250 + 39%
$100,000
Explanation / Answer
1.JKEB Corporation's ownership is less than 20% in the investee companies. Therefore, dividends-received deduction would be 70% of the dividends received.
Therefore, dividends received deduction = $25,000 x 70% = $17,500
2.Compute JKEB Corporation's net loss.
Net loss = Sales - cost of sales - business expenses
= $100,000 - $30,000 - $82,000
= $12,000
When the dividends received by JKEB Corporation is added to the net loss, its income becomes $13,000.
In case of company's making loss, dividends-received deduction is 80% of the company's income after adding the dividends received by it.
Therefore, in this case, dividends-received deduction = $13,000 x 80% = $10,400.
3. Net capital gain for 2012 = 20000 - 10000 + 5000 - 28000 = 13000 Loss
It will be reported as long term capital loss.
4. Carryback to 2008 = 0
Carryback to 2009 = 8000
Carryback to 2010 = 0
Carryback to 2011 = 1000
Explanation: Carryback is allowed for up to 3 years and for maximum of gain reported in that year.
5. Carryforward to 2013 = Reported loss - Carryback
= 13000 - 8000 - 1000 = 4000
It will be treated as short term.
Explanation: As per rules, any carryover is treated as short term
6.Taxable income and tax liability before tax credits: Amount in $ Net income from operations 150000 Dividends received 10000 Long term capital gains 8000 Short term capital gains 3000 Gross total income 171000 Deductions: Charitable contributions 30000 Dividends received (70% deduction as JKEB has 7000 less than 20% share in the investee company) Net operating loss carrover since 2011 30000 Long term capital loss 6000 Capital loss carryover since 2011 - 9000 5000 Total deductions from current year 78000 Taxable income 93000 Tax Liability is $13,750 + 34% in excess of $75,000 19870 7. Carryover to 2013 : capital loss $9,000 - $5,000 = $4,000 8.Tax Liability after using tax credit : Tax Liability 19870 Less: Tax Credit 4500 Net Tax Liability 15370Related Questions
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