Estimated study time: 55 minutes
Content:
C Corporations: Federal income tax at flat 21% rate (post-TCJA). Dividends received deduction (DRD): 50% of dividends if <20% ownership; 65% if 20–80%; 100% if ≥80% (affiliated group). Charitable contributions deducted up to 10% of taxable income before the deduction; excess carried forward 5 years. Net operating losses (NOL): post-2017 NOLs carry forward indefinitely; limited to 80% of taxable income in carryforward year; no carryback (exception: farming losses). Capital loss carryback 3 years, forward 5 years.
S Corporations: Maximum 100 shareholders (members of a family treated as one); shareholders must be US citizens/residents or qualifying trusts/estates; only one class of stock allowed (differences in voting rights OK). Shareholders taxed on their share of S corp income regardless of distributions. Shareholder basis increases with income and contributions; decreases with losses and distributions. Loss deductibility limited to basis (can use at-risk rules, passive activity rules).
Partnerships: Pass-through entity; not subject to entity-level income tax (except some states). Partner's outside basis starts at contribution (FMV of property or cash); adjusted annually for income, loss, guaranteed payments, and distributions. Partner's share of liabilities increases outside basis: general partners include all partnership liabilities; limited partners include only recourse debts where they have economic risk of loss and nonrecourse debts under share-of-profits ratio. At-risk and passive activity rules apply at partner level.
Like-kind exchanges in a partnership: Section 704(c) prevents shifting built-in gain/loss to other partners. The contributing partner recognizes pre-contribution built-in gain when the contributed asset is sold.
Estate and Gift Tax: Unified credit shelters up to $13.61 million (2024, indexed) from estate and gift tax. Annual gift tax exclusion: $18,000 per donee (2024). Basis of inherited property = FMV on date of death (stepped up or down). Basis of gifted property: if gift tax gain = donor's adjusted basis; if gift tax loss = lesser of donor's basis or FMV at date of gift. Portability allows surviving spouse to use deceased spouse's unused exclusion.
Payroll taxes (employer): FICA — Social Security 6.2% on wages up to $168,600 (2024 wage base), Medicare 1.45% on all wages; employer matches employee amounts. FUTA — 6.0% on first $7,000 of each employee's wages; credit up to 5.4% for timely state unemployment tax payments → effective rate 0.6%.
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