Page 105 - BusinessStructures & Forms

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Schedule K, Question 23 and Question Generally, the two kinds of passive • Credit for small employer health
24, later. activities are: insurance premiums (Form 8941).
• Trade or business activities in which the
• Employer credit for paid family and
Section 291 limitations. Corporations corporation did not materially participate medical leave (Form 8994).
may be required to adjust deductions for for the tax year; and
depletion of iron ore and coal, intangible If the corporation has any of the credits
• Rental activities, regardless of its
drilling and exploration and development participation. listed above, figure the current year credit
costs, certain deductions for financial before figuring the deduction for expenses
institutions, and the amortizable basis of For exceptions, see Form 8810, Corporate on which the credit is based. If the
Passive Activity Loss and Credit
pollution control facilities. See section 291 Limitations. corporation capitalized any costs on which
to determine the amount of the it figured the credit, it may need to reduce
adjustment. Corporations subject to the passive the amount capitalized by the credit
Election to deduct business start-up activity limitations must complete Form attributable to these costs.
8810 to compute their allowable passive
and organizational costs. A corporation activity loss and credit. Before completing See the instructions for the form used
can elect to deduct a limited amount of Form 8810, see Temporary Regulations to figure the applicable credit for more
start-up and organizational costs it paid or section 1.163-8T, which provides rules for details.
incurred. Any remaining costs must allocating interest expense among Limitations on deductions related to
generally be amortized over a 180-month activities. If a passive activity is also property leased to tax-exempt entities.
period. See sections 195 and 248 and the subject to the at-risk rules of section 465 If a corporation leases property to a
related regulations. or the tax-exempt use loss rules of section governmental or other tax-exempt entity,
Time for making an election. The 470, those rules apply before the passive the corporation cannot claim deductions
corporation generally elects to deduct loss rules. related to the property to the extent that
they exceed the corporation's income from
start-up or organizational costs by For more information, see section 469,
claiming the deduction on its income tax the related regulations, and Pub. 925, the lease payments. This disallowed
tax-exempt use loss can be carried over to
return filed by the due date (including Passive Activity and At-Risk Rules. the next tax year and treated as a
extensions) for the tax year in which the deduction with respect to the property for
active trade or business begins. For more Closely held corporations. A that tax year. See section 470(d) for
details, including special rules for costs corporation is a closely held corporation if:
paid or incurred before September 9, • At any time during the last half of the tax exceptions.
2008, see the Instructions for Form 4562. year more than 50% in value of its Limitation on tax benefits for remuner-
Also, see Pub. 535, Business Expenses. outstanding stock is directly or indirectly ation under the Patient Protection and
owned by or for not more than five
If the corporation timely filed its return individuals, and Affordable Care Act. The $1 million
for the year without making an election, it • The corporation is not a personal compensation limit is reduced to $500,000
can still make an election by filing an service corporation. for remuneration for services provided by
amended return within 6 months of the individuals for or on behalf of certain
due date of the return (excluding Certain organizations are treated as health insurance providers. The $500,000
extensions). Clearly indicate the election individuals for purposes of this test. See limitation applies to remuneration that is
on the amended return and write “Filed section 542(a)(2). For rules for deductible in the tax year during which the
pursuant to section 301.9100-2” at the top determining stock ownership, see section services were performed and
of the amended return. File the amended 544 (as modified by section 465(a)(3)). remuneration for services during the year
return at the same address the corporation Reducing certain expenses for which that is deductible in a future tax year
filed its original return. The election credits are allowable. If the corporation (called "deferred deduction
applies when figuring taxable income for claims certain credits, it may need to remuneration"). The $500,000 limitation is
the current tax year and all subsequent reduce the otherwise allowable reduced by any amounts disallowed as
years. deductions for expenses used to figure the excess parachute payments. See section
The corporation can choose to forgo credit. This applies to credits such as the 162(m)(6) and Regulations section
1.162-31 for definitions and other special
the elections above by affirmatively following. rules.
electing to capitalize its start-up or • Work opportunity credit (Form 5884).
organizational costs on its income tax • Credit for increasing research activities Line 12. Compensation of
return filed by the due date (including (Form 6765). Officers
extensions) for the tax year in which the • Orphan drug credit (Form 8820).
active trade or business begins. • Disabled access credit (Form 8826). Enter deductible officers' compensation
• Empowerment zone employment credit on line 12. Do not include compensation
Note. The election to either amortize or (Form 8844). deductible elsewhere on the return, such
capitalize start-up costs is irrevocable and • Indian employment credit (Form 8845). as amounts included in cost of goods sold,
applies to all start-up costs that are related • Credit for employer social security and elective contributions to a section 401(k)
to the trade or business. Medicare taxes paid on certain employee cash or deferred arrangement, or amounts
Report the deductible amount of tips (Form 8846). contributed under a salary reduction SEP
start-up and organizational costs and any • Credit for small employer pension plan agreement or a SIMPLE IRA plan.
amortization on line 26. For amortization start-up costs (Form 8881). If the corporation's total receipts
that begins during the current tax year, • Credit for employer-provided childcare (line 1a, plus lines 4 through 10) are
complete and attach Form 4562, facilities and services (Form 8882). $500,000 or more, complete Form
• Low sulfur diesel fuel production credit
Depreciation and Amortization. (Form 8896). 1125-E, Compensation of Officers. Enter
Passive activity limitations. Limitations • Mine rescue team training credit (Form on Form 1120, line 12, the amount from
Form 1125-E, line 4.
on passive activity losses and credits 8923).
under section 469 apply to personal • Credit for employer differential wage Line 13. Salaries and Wages
service corporations (defined earlier) and payments (Form 8932). Enter the total salaries and wages paid for
closely held corporations (defined later). the tax year. Do not include salaries and

Instructions for Form 1120 -11-