ExpertMedium1 markMultiple Choice
CPA · Question 25 · Area III: Entity Tax Planning
A C Corporation is subject to the Accumulated Earnings Tax (AET). Its taxable income is $500,000. Federal income taxes paid are $105,000. It paid $50,000 in dividends. The accumulated earnings credit is $250,000. What is the Accumulated Taxable Income?
A C Corporation is subject to the Accumulated Earnings Tax (AET). Its taxable income is $500,000. Federal income taxes paid are $105,000. It paid $50,000 in dividends. The accumulated earnings credit is $250,000. What is the Accumulated Taxable Income?
Answer options:
A.
$395,000
B.
$95,000
C.
$145,000
D.
$500,000
How to approach this question
Start with Taxable Income. Subtract: Federal Taxes, Dividends Paid, Accumulated Earnings Credit. Result is Accumulated Taxable Income.
Full Answer
B.$95,000✓ Correct
IRC §535. Accumulated Taxable Income = Taxable Income - Federal Income Taxes - Dividends Paid - Accumulated Earnings Credit. $500,000 - $105,000 - $50,000 - $250,000 = $95,000.
Common mistakes
Forgetting to deduct federal taxes; ignoring dividends paid.
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