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“Welcome to the session. This is professor forehead in this session. We would look at at capital gains and capital losses for corporation. This topic is covered in an income course the cpa exam regulation section as well as the enrolled agent exam and specifically on the cpa exam.
It is covered substantially and the reason is this they all try to ask you questions about the capital gains. When it comes to individual as a as well as corporation. They will try to simply confuse you because it s an area that you can be easily confused about because you they could be asking me about corporation or they could be asking you about how an individual taxpayer treats capital gains and capital losses that s why the topic is important as always i would like to remind you my viewers to connect with me on linkedin. If you have a linkedin account please connect with me on a professional level if you don t have a linkedin account.
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Please like them share them put them in play let s let the world know about them this is my twitter account and i do have a website on my website. You could always found cpa offers and for now i m running a special from becker cpa review you could either buy the all four parts at twenty four ninety three or the buck or becker bundle for twenty nine eighty. Seven. Which include digital flash card as well as a final review.
You can go to my website for hat lectures. Com2 check out those offers again this offer will end at a certain time. I will have other offers for you most probably you are either a cpa student or an accounting students. If you are viewing this lecture whether you re a cpa candidate or an accounting student signing up for a cpa course will help you substantially for both reasons so let s go ahead and keep working with the key differences in computing.
The income taxation for individual and the corporation and here here is a list of the differences and we already covered account period. An accounting method in the other section and the other session and the prior session and the session i will work on capital gains and capital losses and recapture of depreciation. This is already done you can find it in the playlist. But today were going to be focus on capital gains and capital losses.
So it s very important to remind you how do individuals treat capital gain capital gains and capital losses and how the corporation which is the topic of this session. Treats capital gains and capital losses individuals hopefully you remember this net capital gain subject to the following preferential treatment. Remember if you have net capital gain. Okay.
What you can do if you if it s a short term remember when you have a capital we have short term capital gain. And we have long term capital gain the short term capital gain basically you will tax it as ordinary income so it s based on your regular tax rate. Whatever your tax rate is that that s gonna that s gonna be subject to that and that could go from 10 up to 37 depending..
Which tax bracket you are in that s that s for the shorter for the long term capital gain for the long term capital gain. Remember they can be taxed at nothing they could be zero percent 15 or 20 depending on your tax bracket now. I m not gonna go the tax bracket here because i did go over those tax bracket. Way way and weight much in detail in prior chapter.
So make sure you know when the use tax adds. When you re not taxed 15. Or or 20. Now.
If you have a net capital loss simply put you have a loss. Overall what can you do well you can deduct up to 3000 of the losses against ordinary. Income so you can deduct up to 3000 of your capital losses. If you have more than 3000 you can carry those to future years and those carry over to not lose their identity.
But remain either a long term or short term whatever that whatever their whatever their character is whatever their short term or long term. So notice you have to just to wrap it up if you want to think about it when we have capital gains and capital losses. We could have short term capital. We could have long term capital gain short term capital loss and long term capital loss and the way.
The gains are treated are different whether it s short term or long term and however the losses. You know he can deduct up to three thousand and the remainder is carried and definitely that s the individual and hopefully. This is a review quick review for you now we need to talk about the corporation. So how does the corporation treat capital gains and capital losses well first thing there is no special tax rate applied to capital gain so if you have a capital gain.
Guess what they don t look at it any differently. They don t look at it any differently any differently than what any differently than any other source of income. So it s basically it s taxable at your regular rate. So they don t they don t treat it any differently.
So the entire gain is included in the income subject to the normal corporate tax rate. So it s you know you have a capital gain. It s not any special. It doesn t get any special treatment.
Now corporation cannot take a deduction for the net capital loss. What happened. If you have an overall capital loss well individual you can take the you can deduct 3000..
Well for corporation. The only thing you can do with capital losses is offset capital gains so if you have capital losses good. The only thing you can do is use it against capital gain use it against capital gain that s the only thing you can do with capital losses. Okay.
What happen if you have too much capital losses. So in other words let s assume you have 3000 inc. And that s let s use something other than. 3000 let s assume you have 5000 in capital.
Gain and. 20000 and capital loss well overall overall you have a loss of 15000. What can you do with that loss well you could undo step of the loss our carried back three years and carried forward five years. So you can do you can go back three years or you can go forward with them five years carry them for five years.
All carried over losses are treated as short term. So this basically it doesn t make a difference whether we call it short term or long term. It doesn t make a difference. Okay why because it doesn t it doesn t have any special.
Any special treatment okay and the best way to illustrate this is to just take a look at two. Example. Robbing an individual include a net long term capital loss of 7500. For year 2018.
Assume an adequate taxable income robyn may deduct three thousand of his loss on the 2018 return and remainder. Which is seventy four thousand five hundred of the losses carried forward to 2019 indefinitely until they use them up okay and they are carried as long term. Because they retained or character as long term now assume that robyn is a corporation well. None of the losses of the 7500 losses in current 2018 can be deducted in that year.
Why because they don t have a capital gain. However what can they do they can carry back the loss to 2015 16 17. And that order you go to the low latest. Then 16.
Dead. The most recent and after that against any capital. Recognized and those here any capital..
Gain what. Happened if you don t exhaust those 7500. If the carry bag does not exhaust then you carry them to 2019 2020. 2021 2020 to 2023 the next five years in this order and the long term capital loss is treated as short term in any kit.
Carryover. Just there is no special treatment okay and the best way to put all of this together is to work an example just to kind of show you how this all fits together okay during 2018 gorilla corporation. A calendar year calendar year c corporation has net short term capital gain of. 1500 so net short term capital gain of 15000.
Net long term capital loss of 105 net long term capital loss of 105. Wow. That s a lot okay in taxable income from other sources 460 that s taxable income from the business. Okay and here are we have data from prior year 2014.
They have net long term capital gain 2015 campaign 2016 that long term capital gain 2017 long term capital gain how are the capital gain in capital losses treated on gorillas 2018 tax return so simply put how are they treated okay well simply put if we have a gain and a loss we net them out overall. We have a loss of ninety thousand and one can we do with that loss for 2018 for 2018 nada nothing remember losses. We cannot do anything with losses for 2018. Because that s the question that s how what the question is asking okay.
That s why now determine the amount of cap of the 2018 cap and loss that s carried back to each of the previous years. So remember we cannot use it now. But we can use it to offset either go back. Three or go.
And go forward with at five let s go back three with it so if we have 90000. And losses. What can we do well going back three years. That s one two three so we re going to start with those are the years that we can offset and we ll start with the latest we start with 2015 so we do for 2015.
We re gonna file a tax return a method tax return and cancel our gain 18000. That s done for 2016. We re gonna also file a return and cancel our gain oops for 20 so this is 2015. This is 2016 and for 2017 we re gonna file an amended return and cancel our losses overall total carry back.
Is 63000 so guess what of the 90000 of. The. 90000 losses we used up..
63000 we still have losses of 27000. What are we gonna do with this twenty seven thousand dollar losses. This is gonna be carried forward to 2019 in case we have any gained 2020 2021 2022 till 2023 20 23 carried forward five years compute the amount of capital loss carried forward already that this 27000. And indicate the years to which dwarfs can be carried again.
We already talked about this okay. Now. If gorilla is a sole proprietorship rather than a corporation. How would the owner report.
These transactions. We re saying as gorilla is not a corporation gorilla is a sole proprietary. So what can they do well remember they computed their net and the net. Was 90000 what can we do with this.
90000 well with this 90000. We can deduct three thousand four year 2018. Because you are allowed you are allowed to deduct three thousand against even ordinary income. So you are allowed to do so well.
If you deduct. I feel deduct three thousand if you deduct let me go back there if you deduct three thousand. What s left is eighty. Seven thousand so feels like three you still have eighty seven thousand now what can you do with this eighty seven thousand this eighty.
Seven will be carried forward indefinitely. And it s going to be long term capital loss long term capital loss long term capital loss. Because it retained it retained its character for the individual now yeah as i said this topic is important. It s four on the income tax.
So on the cpa exam to make sure you do understand the difference between individual how an individual and how the corporation treat capital gains and capital losses if you need additional lectures please visit my website if you happen to do so please consider donating and if you re studying for your cpa exam as always study hard. ” ..
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