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Corporate Options versus Unincorporated Companies

1. What are the tax year options available to a corporation? What about unincorporated companies? Is there a difference and, if so, why? What factors should be considered in electing the tax year?

2. What methods of accounting are available to a small business and to a large business? If the business decides to make an accounting method change, how is this accomplished?

3. What are the requirements for the following deductions: U.S. production activity deduction, dividend received deduction, and net operating loss? Are there any other corporate deductions worth discussing?

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Question 1

For corporations, there are basically two available tax year options: 1) calendar, and 2) fiscal. On the other hand, unincorporated corporations have the same choice. There is a significant difference in calendar and fiscal tax years. The most important is when to pay the annual federal income tax liabilities. For corporations opting to have a calendar year, payment is on or before April 15.

By definition, a calendar year is the 12 consecutive months beginning January 1 and ending December 31. On the other hand, a fiscal year is a 12 consecutive months ending on any last day of any month except December. Moreover, it doesn't actually need to end at the last day of a given month.

Another difference between the two options is that the use of calendar year is mandated for any entity experiencing any of the following situations:

1. "You keep no books or records;
2. "You have no annual accounting period;
3. "Your present tax year does not qualify as a fiscal year; or
4. "You are required to use a calendar year by a provision of the Internal Revenue Code or the ...

Solution Summary

Corporate options versus unincorporated companies are examined. The methods of accounting available and production activity deduction, dividends and NOLs are examined.