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Turbotax com 16. Turbotax com   Reporting Gains and Losses Table of Contents What's New Introduction Useful Items - You may want to see: Reporting Capital Gains and Losses Exception 1. Turbotax com Exception 2. Turbotax com File Form 1099-B or Form 1099-S with the IRS. Turbotax com Capital Losses Capital Gain Tax Rates What's New Maximum capital gain rates. Turbotax com . Turbotax com  For 2013, the maximum capital gain rates are 0%, 15%, 20%, 25%, and 28%. Turbotax com Introduction This chapter discusses how to report capital gains and losses from sales, exchanges, and other dispositions of investment property on Form 8949 and Schedule D (Form 1040). Turbotax com The discussion includes the following topics. Turbotax com How to report short-term gains and losses. Turbotax com How to report long-term gains and losses. Turbotax com How to figure capital loss carryovers. Turbotax com How to figure your tax on a net capital gain. Turbotax com If you sell or otherwise dispose of property used in a trade or business or for the production of income, see Publication 544, Sales and Other Dispositions of Assets, before completing Schedule D (Form 1040). Turbotax com Useful Items - You may want to see: Publication 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses Form (and Instructions) 4797 Sales of Business Property 6252 Installment Sale Income 8582 Passive Activity Loss Limitations 8949 Sales and Other Dispositions of Capital Assets Schedule D (Form 1040) Capital Gains and Losses Reporting Capital Gains and Losses Generally, report capital gains and losses on Form 8949. Turbotax com Complete Form 8949 before you complete line 1b, 2, 3, 8b, 9, or 10 of Schedule D (Form 1040). Turbotax com Use Form 8949 to report: The sale or exchange of a capital asset not reported on another form or schedule; Gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit; and Nonbusiness bad debts. Turbotax com Use Schedule D (Form 1040): To figure the overall gain or loss from transactions reported on Form 8949; To report a gain from Form 6252 or Part I of Form 4797; To report a gain or loss from Form 4684, 6781, or 8824; To report capital gain distributions not reported directly on Form 1040 or Form 1040A; To report a capital loss carryover from the previous tax year to the current tax year; To report your share of a gain or (loss) from a partnership, S corporation, estate, or trust; To report transactions reported to you on a Form 1099-B (or substitute statement) showing basis was reported to the IRS and to which none of the Form 8949 adjustments or codes apply; and To report undistributed long-term capital gains from Form 2439. Turbotax com On Form 8949, enter all sales and exchanges of capital assets, including stocks, bonds, etc. Turbotax com , and real estate (if not reported on Form 4684, 4797, 6252, 6781, 8824, or line 1a or 8a of Schedule D). Turbotax com Include these transactions even if you did not receive a Form 1099-B or 1099-S (or substitute statement) for the transaction. Turbotax com Report short-term gains or losses in Part I. Turbotax com Report long-term gains or losses in Part II. Turbotax com Use as many Forms 8949 as you need. Turbotax com Exceptions to filing Form 8949 and Schedule D (Form 1040). Turbotax com   There are certain situations where you may not have to file Form 8949 and/or Schedule D (Form 1040). Turbotax com Exception 1. Turbotax com   You do not have to file Form 8949 or Schedule D (Form 1040) if you have no capital losses and your only capital gains are capital gain distributions from Form(s) 1099-DIV, box 2a (or substitute statements). Turbotax com (If any Form(s) 1099-DIV (or substitute statements) you receive have an amount in box 2b (unrecaptured section 1250 gain), box 2c (section 1202 gain), or box 2d (collectibles (28%) gain), you do not qualify for this exception. Turbotax com ) If you qualify for this exception, report your capital gain distributions directly on line 13 of Form 1040 (and check the box on line 13). Turbotax com Also use the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions to figure your tax. Turbotax com You can report your capital gain distributions on line 10 of Form 1040A, instead of on Form 1040, if none of the Forms 1099-DIV (or substitute statements) you received have an amount in box 2b, 2c, or 2d, and you do not have to file Form 1040. Turbotax com Exception 2. Turbotax com   You must file Schedule D (Form 1040), but generally do not have to file Form 8949, if Exception 1 does not apply and your only capital gains and losses are: Capital gain distributions; A capital loss carryover; A gain from Form 2439 or 6252 or Part I of Form 4797; A gain or loss from Form 4684, 6781, or 8824; A gain or loss from a partnership, S corporation, estate, or trust; or Gains and losses from transactions for which you received a Form 1099-B (or substitute statement) that shows the basis was reported to the IRS and for which you do not need to make any adjustments in column (g) of Form 8949 or enter any codes in column (f) of Form 8949. Turbotax com Installment sales. Turbotax com   You cannot use the installment method to report a gain from the sale of stock or securities traded on an established securities market. Turbotax com You must report the entire gain in the year of sale (the year in which the trade date occurs). Turbotax com Passive activity gains and losses. Turbotax com    If you have gains or losses from a passive activity, you may also have to report them on Form 8582. Turbotax com In some cases, the loss may be limited under the passive activity rules. Turbotax com Refer to Form 8582 and its instructions for more information about reporting capital gains and losses from a passive activity. Turbotax com Form 1099-B transactions. Turbotax com   If you sold property, such as stocks, bonds, or certain commodities, through a broker, you should receive Form 1099-B or substitute statement from the broker. Turbotax com Use the Form 1099-B or the substitute statement to complete Form 8949. Turbotax com If you sold a covered security in 2013, your broker should send you a Form 1099-B (or substitute statement) that shows your basis. Turbotax com This will help you complete Form 8949. Turbotax com Generally, a covered security is a security you acquired after 2010. Turbotax com   Report the gross proceeds shown in box 2a of Form 1099-B as the sales price in column (d) of either Part I or Part II of Form 8949, whichever applies. Turbotax com However, if the broker advises you, in box 2a of Form 1099-B, that gross proceeds (sales price) less commissions and option premiums were reported to the IRS, enter that net sales price in column (d) of either Part I or Part II of Form 8949, whichever applies. Turbotax com    Include in column (g) any expense of sale, such as broker's fees, commissions, state and local transfer taxes, and option premiums, unless you reported the net sales price in column (d). Turbotax com If you include an expense of sale in column (g), enter “E” in column (f). Turbotax com Form 1099-CAP transactions. Turbotax com   If a corporation in which you own stock has had a change in control or a substantial change in capital structure, you should receive Form 1099-CAP or a substitute statement from the corporation. Turbotax com Use the Form 1099-CAP or substitute statement to fill in Form 8949. Turbotax com If your computations show that you would have a loss because of the change, do not enter any amounts on Form 8949 or Schedule D (Form 1040). Turbotax com You cannot claim a loss on Schedule D (Form 1040) as a result of this transaction. Turbotax com   Report the aggregate amount received shown in box 2 of Form 1099-CAP as the sales price in column (d) of either Part I or Part II of Form 8949, whichever applies. Turbotax com Form 1099-S transactions. Turbotax com   If you sold or traded reportable real estate, you generally should receive from the real estate reporting person a Form 1099-S showing the gross proceeds. Turbotax com    “Reportable real estate” is defined as any present or future ownership interest in any of the following: Improved or unimproved land, including air space; Inherently permanent structures, including any residential, commercial, or industrial building; A condominium unit and its accessory fixtures and common elements, including land; and Stock in a cooperative housing corporation (as defined in section 216 of the Internal Revenue Code). Turbotax com   A “real estate reporting person” could include the buyer's attorney, your attorney, the title or escrow company, a mortgage lender, your broker, the buyer's broker, or the person acquiring the biggest interest in the property. Turbotax com   Your Form 1099-S will show the gross proceeds from the sale or exchange in box 2. Turbotax com See the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040) for how to report these transactions and include them in Part I or Part II of Form 8949 as appropriate. Turbotax com However, report like-kind exchanges on Form 8824 instead. Turbotax com   It is unlawful for any real estate reporting person to separately charge you for complying with the requirement to file Form 1099-S. Turbotax com Nominees. Turbotax com   If you receive gross proceeds as a nominee (that is, the gross proceeds are in your name but actually belong to someone else), see the Instructions for Form 8949 for how to report these amounts on Form 8949. Turbotax com File Form 1099-B or Form 1099-S with the IRS. Turbotax com   If you received gross proceeds as a nominee in 2013, you must file a Form 1099-B or Form 1099-S for those proceeds with the IRS. Turbotax com Send the Form 1099-B or Form 1099-S with a Form 1096, Annual Summary and Transmittal of U. Turbotax com S. Turbotax com Information Returns, to your Internal Revenue Service Center by February 28, 2014 (March 31, 2014, if you file Form 1099-B or Form 1099-S electronically). Turbotax com Give the actual owner of the proceeds Copy B of the Form 1099-B or Form 1099-S by February 18, 2014. Turbotax com On Form 1099-B, you should be listed as the “Payer. Turbotax com ” The other owner should be listed as the “Recipient. Turbotax com ” On Form 1099-S, you should be listed as the “Filer. Turbotax com ” The other owner should be listed as the “Transferor. Turbotax com ” You do not have to file a Form 1099-B or Form 1099-S to show proceeds for your spouse. Turbotax com For more information about the reporting requirements and the penalties for failure to file (or furnish) certain information returns, see the General Instructions for Certain Information Returns. Turbotax com If you are filing electronically see Publication 1220. Turbotax com Sale of property bought at various times. Turbotax com   If you sell a block of stock or other property that you bought at various times, report the short-term gain or loss from the sale on one row in Part I of Form 8949, and the long-term gain or loss on one row in Part II of Form 8949. Turbotax com Write “Various” in column (b) for the “Date acquired. Turbotax com ” Sale expenses. Turbotax com    On Form 8949, include in column (g) any expense of sale, such as broker's fees, commissions, state and local transfer taxes, and option premiums, unless you reported the net sales price in column (d). Turbotax com If you include an expense of sale in column (g), enter “E” in column (f). Turbotax com   For more information about adjustments to basis, see chapter 13. Turbotax com Short-term gains and losses. Turbotax com   Capital gain or loss on the sale or trade of investment property held 1 year or less is a short-term capital gain or loss. Turbotax com You report it in Part I of Form 8949. Turbotax com   You combine your share of short-term capital gain or loss from partnerships, S corporations, estates, and trusts, and any short-term capital loss carryover, with your other short-term capital gains and losses to figure your net short-term capital gain or loss on line 7 of Schedule D (Form 1040). Turbotax com Long-term gains and losses. Turbotax com    A capital gain or loss on the sale or trade of investment property held more than 1 year is a long-term capital gain or loss. Turbotax com You report it in Part II of Form 8949. Turbotax com   You report the following in Part II of Schedule D (Form 1040): Undistributed long-term capital gains from a mutual fund (or other regulated investment company) or real estate investment trust (REIT); Your share of long-term capital gains or losses from partnerships, S corporations, estates, and trusts; All capital gain distributions from mutual funds and REITs not reported directly on line 10 of Form 1040A or line 13 of Form 1040; and Long-term capital loss carryovers. Turbotax com    The result after combining these items with your other long-term capital gains and losses is your net long-term capital gain or loss (Schedule D (Form 1040), line 15). Turbotax com Total net gain or loss. Turbotax com   To figure your total net gain or loss, combine your net short-term capital gain or loss (Schedule D (Form 1040), line 7) with your net long-term capital gain or loss (Schedule D (Form 1040), line 15). Turbotax com Enter the result on Schedule D (Form 1040), Part III, line 16. Turbotax com If your losses are more than your gains, see Capital Losses , next. Turbotax com If both lines 15 and 16 of your Schedule D (Form 1040) are gains and your taxable income on your Form 1040 is more than zero, see Capital Gain Tax Rates , later. Turbotax com Capital Losses If your capital losses are more than your capital gains, you can claim a capital loss deduction. Turbotax com Report the amount of the deduction on line 13 of Form 1040, in parentheses. Turbotax com Limit on deduction. Turbotax com   Your allowable capital loss deduction, figured on Schedule D (Form 1040), is the lesser of: $3,000 ($1,500 if you are married and file a separate return); or Your total net loss as shown on line 16 of Schedule D (Form 1040). Turbotax com   You can use your total net loss to reduce your income dollar for dollar, up to the $3,000 limit. Turbotax com Capital loss carryover. Turbotax com   If you have a total net loss on line 16 of Schedule D (Form 1040) that is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you had incurred it in that next year. Turbotax com If part of the loss is still unused, you can carry it over to later years until it is completely used up. Turbotax com   When you figure the amount of any capital loss carryover to the next year, you must take the current year's allowable deduction into account, whether or not you claimed it and whether or not you filed a return for the current year. Turbotax com   When you carry over a loss, it remains long term or short term. Turbotax com A long-term capital loss you carry over to the next tax year will reduce that year's long-term capital gains before it reduces that year's short-term capital gains. Turbotax com Figuring your carryover. Turbotax com   The amount of your capital loss carryover is the amount of your total net loss that is more than the lesser of: Your allowable capital loss deduction for the year; or Your taxable income increased by your allowable capital loss deduction for the year and your deduction for personal exemptions. Turbotax com   If your deductions are more than your gross income for the tax year, use your negative taxable income in computing the amount in item (2). Turbotax com    Complete the Capital Loss Carryover Worksheet in the Instructions for Schedule D or Publication 550 to determine the part of your capital loss that you can carry over. Turbotax com Example. Turbotax com Bob and Gloria sold securities in 2013. Turbotax com The sales resulted in a capital loss of $7,000. Turbotax com They had no other capital transactions. Turbotax com Their taxable income was $26,000. Turbotax com On their joint 2013 return, they can deduct $3,000. Turbotax com The unused part of the loss, $4,000 ($7,000 − $3,000), can be carried over to 2014. Turbotax com If their capital loss had been $2,000, their capital loss deduction would have been $2,000. Turbotax com They would have no carryover. Turbotax com Use short-term losses first. Turbotax com   When you figure your capital loss carryover, use your short-term capital losses first, even if you incurred them after a long-term capital loss. Turbotax com If you have not reached the limit on the capital loss deduction after using the short-term capital losses, use the long-term capital losses until you reach the limit. Turbotax com Decedent's capital loss. Turbotax com    A capital loss sustained by a decedent during his or her last tax year (or carried over to that year from an earlier year) can be deducted only on the final income tax return filed for the decedent. Turbotax com The capital loss limits discussed earlier still apply in this situation. Turbotax com The decedent's estate cannot deduct any of the loss or carry it over to following years. Turbotax com Joint and separate returns. Turbotax com   If you and your spouse once filed separate returns and are now filing a joint return, combine your separate capital loss carryovers. Turbotax com However, if you and your spouse once filed a joint return and are now filing separate returns, any capital loss carryover from the joint return can be deducted only on the return of the spouse who actually had the loss. Turbotax com Capital Gain Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. Turbotax com These lower rates are called the maximum capital gain rates. Turbotax com The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. Turbotax com For 2013, the maximum capital gain rates are 0%, 15%, 20%, 25%, and 28%. Turbotax com See Table 16-1 for details. Turbotax com If you figure your tax using the maximum capital gain rate and the regular tax computation results in a lower tax, the regular tax computation applies. Turbotax com Example. Turbotax com All of your net capital gain is from selling collectibles, so the capital gain rate would be 28%. Turbotax com If you are otherwise subject to a rate lower than 28%, the 28% rate does not apply. Turbotax com Investment interest deducted. Turbotax com   If you claim a deduction for investment interest, you may have to reduce the amount of your net capital gain that is eligible for the capital gain tax rates. Turbotax com Reduce it by the amount of the net capital gain you choose to include in investment income when figuring the limit on your investment interest deduction. Turbotax com This is done on the Schedule D Tax Worksheet or the Qualified Dividends and Capital Gain Tax Worksheet. Turbotax com For more information about the limit on investment interest, see Interest Expenses in chapter 3 of Publication 550. Turbotax com Table 16-1. Turbotax com What Is Your Maximum Capital Gain Rate? IF your net capital gain is from . Turbotax com . Turbotax com . Turbotax com THEN your  maximum capital gain rate is . Turbotax com . Turbotax com . Turbotax com a collectibles gain 28% an eligible gain on qualified small business stock minus the section 1202 exclusion 28% an unrecaptured section 1250 gain 25% other gain1 and the regular tax rate that would apply is 39. Turbotax com 6% 20% other gain1 and the regular tax rate that would apply is 25%, 28%, 33%, or 35% 15% other gain1 and the regular tax rate that would apply is 10% or 15% 0% 1 Other gain means any gain that is not collectibles gain, gain on qualified small business stock, or unrecaptured section 1250 gain. Turbotax com     Collectibles gain or loss. Turbotax com   This is gain or loss from the sale or trade of a work of art, rug, antique, metal (such as gold, silver, and platinum bullion), gem, stamp, coin, or alcoholic beverage held more than 1 year. Turbotax com   Collectibles gain includes gain from sale of an interest in a partnership, S corporation, or trust due to unrealized appreciation of collectibles. Turbotax com Gain on qualified small business stock. Turbotax com    If you realized a gain from qualified small business stock that you held more than 5 years, you generally can exclude some or all of your gain under section 1202. Turbotax com The eligible gain minus your section 1202 exclusion is a 28% rate gain. Turbotax com See Gains on Qualified Small Business Stock in chapter 4 of Publication 550. Turbotax com Unrecaptured section 1250 gain. Turbotax com    Generally, this is any part of your capital gain from selling section 1250 property (real property) that is due to depreciation (but not more than your net section 1231 gain), reduced by any net loss in the 28% group. Turbotax com Use the Unrecaptured Section 1250 Gain Worksheet in the Schedule D (Form 1040) instructions to figure your unrecaptured section 1250 gain. Turbotax com For more information about section 1250 property and section 1231 gain, see chapter 3 of Publication 544. Turbotax com Tax computation using maximum capital gain rates. Turbotax com   Use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet (whichever applies) to figure your tax if you have qualified dividends or net capital gain. Turbotax com You have net capital gain if Schedule D (Form 1040), lines 15 and 16, are both gains. Turbotax com Schedule D Tax Worksheet. Turbotax com   Use the Schedule D Tax Worksheet in the Schedule D (Form 1040) instructions to figure your tax if: You have to file Schedule D (Form 1040); and Schedule D (Form 1040), line 18 (28% rate gain) or line 19 (unrecaptured section 1250 gain), is more than zero. Turbotax com Qualified Dividends and Capital Gain Tax Worksheet. Turbotax com   If you do not have to use the Schedule D Tax Worksheet (as explained above) and any of the following apply, use the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040 or Form 1040A (whichever you file) to figure your tax. Turbotax com You received qualified dividends. Turbotax com (See Qualified Dividends in chapter 8. Turbotax com ) You do not have to file Schedule D (Form 1040) and you received capital gain distributions. Turbotax com (See Exceptions to filing Form 8949 and Schedule D (Form 1040) , earlier. Turbotax com ) Schedule D (Form 1040), lines 15 and 16, are both more than zero. Turbotax com Alternative minimum tax. Turbotax com   These capital gain rates are also used in figuring alternative minimum tax. Turbotax com Prev  Up  Next   Home   More Online Publications
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Understanding Your CP291 Notice

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Notice CP291, Page 1

 

Page Last Reviewed or Updated: 16-Jan-2014

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