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