For Florida corporate income taxes, Briefly describe any addition or subtraction

Question

For Florida corporate income taxes, Briefly describe any addition or subtraction modifications that are required for following items:

(i) dividends-received deduction,

(ii) state and local income taxes,

(iii) interest earned on debt obligations of the federal government,

(iv) interest earned on debt obligations of state and local governments,

(v) expenses related to federal or state tax credits,

(vi) federal Section 168(k) first-year bonus depreciation,

(vii) royalties and interest paid to related parties,

(viii) federal Section 199 domestic production activities deduction,

(ix) federal Subpart F income and Section 78 gross-up income related to foreign (non-U.S.) subsidiaries, and

(x) net operating loss deductions. – cannot carry back a florida net operating loss deduction to a prior taxable year.

Explanation / Answer

1)dividends-received deduction,

Corporations also can take advantage of the 80% dividends-received deduction for dividends they receive from other corporations. Additionally, a corporation or LLC separates your business tax profile from your personal tax profile in a way that sole proprietorships and partnerships do not.

2) state and local income taxes,

Any corporation doing business in the state of Florida pays an annual fee to the Secretary of State. It also remits to the state use taxes on its physical property located in Florida, sales taxes owed by its customers, fees for any licenses it holds (for instance, a travel agency license), and an income tax based on what it owes to the federal government (meaning that for an S Corporation, there is no income tax), however, limited liability companies only recently were freed from tax that was calculated as though they paid federal income tax (but their higher formation and maintenance costs still limit the latter's attractiveness).

3) interest earned on debt obligations of the federal government,

F.S. §220.13(1)(a) provides for 11 separate items which will be added back to the taxpayer’s taxable income for the tax year.12 All of these items are used to add back to the taxpayer’s federal income certain items which were allowed as a deduction or were excluded from income under the IRC or Florida corporate income tax credits. Theses items include: deductions for state and local taxes, specific interest which was excluded from federal income tax, items for regulated investment companies and real estate investment trusts, portions of wages and salaries which relate to the Florida corporate enterprise zone jobs credit, portions of ad valorem taxes which relate to the Florida corporate enterprise zone property tax credit, the amount of the Florida emergency excise tax deducted under the IRC, amounts for a guaranteed association, pari-mutuel operations of a nonprofit corporation, rural job tax credit and urban high crime area job tax credit, state housing credit, and credits for contributions to nonprofit scholarship-funding organizations.13

F.S. §220.13(1)(b) provides for subtractions from the taxpayer’s taxable income for the tax year. These items include: net operating losses, net capital losses, excess charitable deductions, excess contributions under IRC §404, foreign source dividends, income from IRC §§78 and 951, wages and salaries which relate to the credit for employment of certain new employees, nonbusiness income, and credits which relate to IRC §901. The lawyer needs to make sure that net operating losses and net capital losses may only be carried forward and cannot be used in prior tax years.

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