Question

brianna owns 40% of the stock of cassowary corporation (a c corporation) and 40% of the stock of emu corporation (an s corporation). in the current year, each corporation has operating income of $120,000 (before income tax expense) and tax-exempt interest income of $8,000. neither corporation pays any dividends during the year.

Answer 1

S corporation : Corporation that does not pay federal income taxes

Brianna - Income/loss is passed on to stock holders, who reveal it on their personal tax returns.

C corporation: Twofold taxation corporation that analyses income on Type 1120.

Brianna - Already taxed income is shared to stakeholder, who document it on their tax returns as profits.

The C Corps

Entity-level taxation applies.

Form 1120 is used to report income and expenses.

Dividends are not tax deductible.

Double taxation occurs when a corporation pays income tax and then distributes the money to shareholders, who report it as dividend income. Dividends received by shareholders are taxed.

Tax Estimates

Corporations make estimated tax payments unless the liability is less than $500.

The annual payment required is equal to the lesser of:

100% of the current fiscal year

100% of the previous year's tax

Tax payments can be made in quarterly instalments if estimated.

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