Actual charitable contributions made by Mullins Corporation were $75,000. What are the federal income tax due and the personal holding company (PHC) tax liability? Discuss the methods (if any) by which payment of the PHC tax can be avoided.
Dividends (from 25%-owned domestic corporation) 200,000
Interest 150,000
Gross income $540,000
Minus: general and administrative expenses ( 40,000)
Minus: salaries ( 30,000)
"Adjusted" taxable income $470,000
Minus: charitable contributions ( 47,000)
Taxable income before special deductions $423,000
Minus: dividends-received deduction (130,000)
Taxable income $293,000
Corporate Income tax liability (293,000 * .21) $61,530
Taxable income $293,000
Plus: dividends-received deduction 130,000
Minus: excess charitable contributions ($75,000 - $47,000) ( 28,000)
Federal income tax ( 61,530)
Long-term capital gain (net of taxes) ( 15,800)a
UPHCI $317,670
Times: tax rate × 0.20
PHC tax $ 63,534
a$20,000 - ($20,000 × 0.21) = $15,800
Payment of the PHC tax can be avoided by paying a timely deficiency dividend in the amount of $296,980.
You might also like to view...
Identify the element of communication process that can be the creative part of an advertisement or Web site
A) response B) encoding C) decoding D) feedback
The conservation movement advocated a restrained and prudent approach to the natural world.
Answer the following statement true (T) or false (F)
The maintenance factors of two-factor theory are also called ______.
a. basic motivators b. low motivators c. extrinsic motivators d. intrinsic motivators
The income or losses of an LLC flow through to the members' individual income tax returns; this avoids double-taxation.
Answer the following statement true (T) or false (F)