Page 106 - BusinessStructures & Forms

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wages deductible elsewhere on the return, an amount includible in income called the • Taxes assessed against local benefits
such as amounts included in officers' inclusion amount. The corporation may that increase the value of the property
compensation, cost of goods sold, have an inclusion amount if: assessed (such as for paving, etc.).
elective contributions to a section 401(k) • Taxes deducted elsewhere on the
cash or deferred arrangement, or amounts And the vehicle's return, such as those reflected in cost of
contributed under a salary reduction SEP FMV on the first goods sold.
agreement or a SIMPLE IRA plan. day of the lease See section 164(d) for information on
The lease term began: exceeded:
If the corporation provided taxable apportionment of taxes on real property
fringe benefits to its employees, such as Cars (excluding trucks between seller and purchaser.
personal use of a car, do not deduct as and vans) Do not reduce the corporation's
wages the amount allocated for After 12/31/21 but before deduction for social security and
depreciation and other expenses claimed 1/1/23 . . . . . . . . . . $56,000 ! Medicare taxes by the
on lines 20 and 26. After 12/31/20 but before nonrefundable and refundable portions of
CAUTION
If the corporation claims a credit 1/1/22 . . . . . . . . . . $51,000 the FFCRA and ARP credits for qualified
! for any wages paid or incurred, it After 12/31/17 but before sick and family leave wages claimed on its
CAUTION may need to reduce any 1/1/21 . . . . . . . . . . $50,000 employment tax returns. Instead, report
corresponding deduction for officers' this amount as income on line 10.
compensation and salaries and wages. After 12/31/12 but before
See Reducing certain expenses for which 1/1/18 . . . . . . . . . . $19,000 Line 18. Interest
credits are allowable, earlier. After 12/31/07 but before
1/1/13 . . . . . . . . . . $18,500 Note. Do not offset interest income
Line 14. Repairs and Trucks and vans against interest expense.
Maintenance After 12/31/21 but before The corporation must make an interest
Enter the cost of repairs and maintenance 1/1/23 . . . . . . . . . . $56,000 allocation if the proceeds of a loan were
used for more than one purpose (for
not claimed elsewhere on the return, such After 12/31/20 but before example, to purchase a portfolio
as labor and supplies, that are not 1/1/22 . . . . . . . . . . $51,000 investment and to acquire an interest in a
payments to produce or improve tangible passive activity). See Temporary
or real property. See Regulations After 12/31/17 but before Regulations section 1.163-8T for the
1.263(a)-1. For example, amounts are 1/1/21 . . . . . . . . . . $50,000 interest allocation rules.
paid for improvements if they are for After 12/31/13 but before
betterments to the property, restorations 1/1/18 . . . . . . . . . . $19,500 Mutual savings banks, building and
of the property (such as the replacements After 12/31/09 but before loan associations, and cooperative banks
of major components or substantial 1/1/14 . . . . . . . . . . $19,000 can deduct the amounts paid or credited
structural parts), or if they adapt the to the accounts of depositors as
property to a new or different use. After 12/31/08 but before dividends, interest, or earnings. See
Amounts paid to produce or improve 1/1/10 . . . . . . . . . . $18,500 section 591.
property must be capitalized. See After 12/31/07 but before Do not deduct the following interest.
Regulations sections 1.263(a)-2 and (a)-3. 1/1/09 . . . . . . . . . . $19,000 • Interest on indebtedness incurred or

The corporation can deduct repair and continued to purchase or carry obligations
maintenance expenses only to the extent if the interest is wholly exempt from
they relate to a trade or business activity. income tax. See section 265(b) for special
See Regulations section 1.162-4. The rules and exceptions for financial
corporation may elect to capitalize certain institutions. Also, see section 265(b)(7) for
repair and maintenance costs consistent See Pub. 463, Travel, Gift, and Car a de minimis exception for financial
with its books and records. See Expenses, for instructions on figuring the institutions for certain tax-exempt bonds
Regulations section 1.263(a)-3(n) for inclusion amount. issued in 2009 and 2010.
information on how to make the election. • For cash basis taxpayers, prepaid
Line 15. Bad Debts Note. The inclusion amount for lease interest allocable to years following the
current tax year. For example, a cash
terms beginning in 2023 will be published
Enter the total debts that became in the Internal Revenue Bulletin in early basis calendar year taxpayer who in 2022
worthless in whole or in part during the tax 2023. prepaid interest allocable to any period
year. A small bank or thrift institution using Line 17. Taxes and Licenses after 2022 can deduct only the amount
the reserve method of section 585 should allocable to 2022.
attach a statement showing how it figured Enter taxes paid or accrued during the tax • Interest and carrying charges on
the current year's provision. A corporation year, but do not include the following. straddles. Generally, these amounts must
that uses the cash method of accounting • Federal income taxes. be capitalized. See section 263(g).
cannot claim a bad debt deduction unless • Foreign or U.S. possession income • Interest on debt allocable to the
the amount was previously included in taxes if a foreign tax credit is claimed. production of designated property by a
income. • Taxes not imposed on the corporation. corporation for its own use or for sale. The
• Taxes, including state or local sales
Line 16. Rents taxes, that are paid or incurred in corporation must capitalize this interest.
Also, capitalize any interest on debt
If the corporation rented or leased a connection with an acquisition or allocable to an asset used to produce the
vehicle, enter the total annual rent or lease disposition of property (these taxes must property. See section 263A(f) and
expense paid or incurred during the year. be treated as a part of the cost of the Regulations sections 1.263A-8 through
Also, complete Part V of Form 4562. If the acquired property or, in the case of a 1.263A-15 for definitions and more
corporation leased a vehicle for a term of disposition, as a reduction in the amount information.
30 days or more, the deduction for vehicle realized on the disposition). • Interest paid or incurred on any portion
lease expense may have to be reduced by of an underpayment of tax that is

-12- Instructions for Form 1120