How to corporations pay taxes on stock they hold

[EMoney88]

How to corporations that hold stock in a brokerage account pay taxes on those dividends and sale transactions (capital gain/loss)

[maryg52]

Corporations would receive a 1099-DIV or 1099-B just like an individual to indicate the dividends and sales transactions that have occurred with their stocks.  This information would be included on their appropriate tax return for the year.

[EMoney88]

Are the rates that corps pay on their 1099 B and 1099DIV different from that of individuals? If so, how?

[Cindy4]

The corporate tax rate is a flat 21% since the Tax Cuts and Jobs Act went into effect in 2018.

Individual tax rates are based on the tax brackets for taxable income for ordinary income for Dividends, and the capital gains tax brackets for capital gains. 

Hope this helps!

Cindy

[EMoney88]

@Cindy4  Would that mean that since corporations pay a flat tax rate on capital gains and dividends, they would not get LT capital gains or qualified dividends based on how long they held the stock?

thank you for all the replies. 
Very very helpful. 

[Terri Lynn]

Hello, and good afternoon EMoney88!

While corporations do not receive the same special long term capital gains tax rates as individuals, they do still classify the stock as long, or short term, in the same manner as individuals.

The profit or loss from a sale or exchange of a corporate asset held for more than a year, is a long-term capital gain or loss. Likewise, the sale or exchange of an asset held for a year or less ,is a short-term capital gain or loss.

 Corporations can use a short-term capital loss to offset a long-term capital gain, reducing the company’s taxable income. An added advantage is that the IRS allows corporations to use capital losses to carryback and offset their capital gains for up to  three years, and they can also carryforward  the capital losses for five years.

• For more informaion on Corporate Tax, please see:  IRS Pub 542 Corporations 

Have a great rest of your day!

Terri Lynn, EA

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[ktran9]

Under current law, the federal tax rate for corporate capital gain is the same as ordinary income: 21%.

It is more complicated if a corporation receives dividends from another domestic corporation. The topic is beyond the scope of this forum.

Generally, a US corporation may deduct 50% of certain dividends from other US corporations in determining taxable income. It is called the dividends received deduction (DRD). Different tiers of possible deductions depend on the ownership percentage of the distributing corporation.

Please refer to the IRS Publication 542 for more information.  

https://www.irs.gov/publications/p542#en_US_202401_publink1000257826

[Mike9241]

Is this corporation taxed as a C or S Corp? 

if a C-Corp

does it meet the definition of a personal Holding company under IRC 542

(a)General rule
For purposes of this subtitle, the term “personal holding company” means any corporation (other than a corporation described in subsection (c)) if—
(1)Adjusted ordinary gross income requirement
At least 60 percent of its adjusted ordinary gross income (as defined in section 543(b)(2)) for the taxable year is personal holding company income (as defined in section 543(a)), and

(2)Stock ownership requirement
At any time during the last half of the taxable year more than 50 percent in value of its outstanding stock is owned, directly or indirectly, by or for not more than 5 individuals. For purposes of this paragraph, an organization described in section 401(a), 501(c)(17), or 509(a) or a portion of a trust permanently set aside or to be used exclusively for the purposes described in section 642(c) or a corresponding provision of a prior income tax law shall be considered an individual.

a C-corp that is a PHC faces special taxes.