IRS Publication 542
What Is IRS Publication 542?
The term IRS Publication 542 alludes to a document distributed by the Internal Revenue Service (IRS) that gives information on the general tax rules that domestic corporations must follow. IRS Publication 542 layouts the type of organizations that are taxed as corporations, the accounting methods regularly utilized, the deductions permitted, and the tax tables to be utilized.
Understanding IRS Publication 542
The Internal Revenue Service is the government agency responsible for collecting taxes from the public and for upholding tax laws. The agency's primary purpose is to collect income and employment taxes as well as others, for example, corporate, estate, and gift taxes. Individuals and corporations use IRS forms to complete their annual tax returns. The IRS incorporates a series of directions and publications to assist with directing taxpayers on the most proficient method to complete these filings.
IRS Publication 542 diagrams tax laws that oversee what the agency calls ordinary domestic corporations — organizations that conduct their business in the United States. The publication explains the tax law in plain language to make it more clear. In any case, the information given doesn't cover each situation and isn't planned to supplant the law or change its importance.
Points covered in the publication incorporate, however aren't limited to the following:
- The most effective method to determine whether a business is taxed as a corporation
- Rules applied to the transfer of property exchanged for stock
- The tax treatment of contributed capital from shareholders and nonshareholders
- Instructions to file and pay income taxes
- Accounting and recordkeeping methods
- Corporate deductions
- Distributions
The IRS intermittently refreshes the publication to reflect new tax laws and rules. For example, the IRS modified Publication 542 in January 2019, following changes to the tax law because of the death of the Tax Cuts and Jobs Act (TCJA). These modifications addressed changes to the corporate tax rate alongside the elimination of the corporate alternative least tax (AMT) for tax a long time after 2017.
Special Considerations
As referenced over, this publication frames the types of organizations that are taxed as corporations. According to the IRS, the following businesses formed after the year 1996 are taxed as corporations:
- A business formed under a federal or state law that alludes to it as a corporation, body corporate, or body politic
- A business formed under a state law that alludes to it as a joint-stock company or joint-stock affiliation
- A insurance company
- Certain banks
- A business wholly owned by a state or nearby government
- A business explicitly required to be taxed as a corporation by the Internal Revenue Code (IRC, for example, certain publicly-exchanged partnerships
- Certain foreign businesses
- Whatever other business that chooses to be taxed as a corporation, for example, a limited liability company (LLC) or a S-Corporation
Corporations are dealt with uniquely in contrast to partnerships. Gains and losses that apply to partnerships are gone through to partners while the gains and losses from S Corporations are gone through to shareholders. Shareholders of corporations can receive income from the business itself as dividends, which can be taxed both on the corporate level prior to distribution and on the individual level when they are shipped off shareholders.
Features
- IRS Publication 542 is a document distributed by the Internal Revenue Service that gives information on the general tax rules that domestic corporations must follow.
- The publication frames the type of organizations taxed as corporations, the accounting methods utilized, the deductions permitted, and the tax tables that must be utilized.
- The IRS routinely refreshes the publication.
