With relatively few specific exceptions, corporations are entitled to the same deductions for business-related expenditures that individual are.

(IRC § 162.) Unlike individuals, however, corporations do not get a personal exemption nor are they entitled to a standard deduction.

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After such a distribution the shareholder’s stake in the corporation is unchanged, thus the distribution is considered a distribution of the corporation’s previously taxed earnings (that is, it’s considered a dividend).

Some distributions to shareholders do affect the shareholder’s stake in the business, however.

Thus, if a shareholder is paid $1,000,000 in cash from a corporation in complete redemption of stock in which the shareholder has a $100,000 adjusted basis, the shareholder recognizes $900,000 in gain.

Of course, continuing with our example from above, in order for the corporation to make such a distribution of cash to the shareholder it would have had to have sold the building first, in which case it would have recognized income on which a corporate tax would have resulted. Finally, essentially the same result—recognition of income at both the corporate and shareholder levels—occurs even in the complete liquidation of a corporation.

Assuming no deductions and assuming (for the sake of simplicity) a 20% corporate tax, the corporation would pay $180,000 in federal tax and accumulate $720,000 in E&P.

Recall, however, that it sold the building for

Recall, however, that it sold the building for $1,000,000, so after paying the tax the corporation should now have $820,000 in cash in the bank.Taxpayers which are corporations are subjected to tax under section 11 of the Code.In other words, just like individual taxpayers, corporations must recognize their own gross income, take into account their own deductible expenditures, and arrive at a taxable income amount upon which the corporation pays tax at the graduated rates described in section 11.it is governed not by section 301 but rather by section 302.Instead of applying ordering rules, the tax effect of a redemption is rather more straightforward: the distribution is simply deemed the consideration for the shareholder’s stock. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children.

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Recall, however, that it sold the building for $1,000,000, so after paying the tax the corporation should now have $820,000 in cash in the bank.

Taxpayers which are corporations are subjected to tax under section 11 of the Code.

In other words, just like individual taxpayers, corporations must recognize their own gross income, take into account their own deductible expenditures, and arrive at a taxable income amount upon which the corporation pays tax at the graduated rates described in section 11.

it is governed not by section 301 but rather by section 302.

Instead of applying ordering rules, the tax effect of a redemption is rather more straightforward: the distribution is simply deemed the consideration for the shareholder’s stock.

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children.

||

Recall, however, that it sold the building for $1,000,000, so after paying the tax the corporation should now have $820,000 in cash in the bank.

Taxpayers which are corporations are subjected to tax under section 11 of the Code.

In other words, just like individual taxpayers, corporations must recognize their own gross income, take into account their own deductible expenditures, and arrive at a taxable income amount upon which the corporation pays tax at the graduated rates described in section 11.

it is governed not by section 301 but rather by section 302.

,000,000, so after paying the tax the corporation should now have 0,000 in cash in the bank.

Taxpayers which are corporations are subjected to tax under section 11 of the Code.

In other words, just like individual taxpayers, corporations must recognize their own gross income, take into account their own deductible expenditures, and arrive at a taxable income amount upon which the corporation pays tax at the graduated rates described in section 11.

it is governed not by section 301 but rather by section 302.

Instead of applying ordering rules, the tax effect of a redemption is rather more straightforward: the distribution is simply deemed the consideration for the shareholder’s stock.

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children.