Instructions For Form 1120-Pc - 2004 (Page 11 of 21) in pdf

Deductions

section 1.248-1(c). Report the deductible

shareholders under the Securities

amount of these costs and any

Exchange Act of 1934 because the

Limitations on Deductions

amortization on line 31, Schedule A. For

employee is among the four highest

amortization that begins during the 2004

compensated officers for that tax year

Section 263A uniform capitalization

tax year, complete and attach Form 4562.

(other than the chief executive officer).

rules. The uniform capitalization rules of

section 263A require corporations to

Reducing certain expenses for which

For this purpose, compensation does

capitalize certain costs.

credits are allowable. For each credit

not include the following:

•

listed below, the corporation must reduce

Income from certain employee trusts,

For details on the uniform

the otherwise allowable deductions for

annuity plans, or pensions.

capitalization rules, see Regulations

•

expenses used to figure the credit by the

Any benefit paid to an employee that is

sections 1.263A-1 through 1.263A-3.

amount of the current year credit.

excluded from the employee’s income.

•

Work opportunity credit.

Transactions between related

•

The deduction limit does not apply to:

Research credit.

taxpayers. Generally, an accrual basis

•

Commissions based on individual

Disabled access credit.

taxpayer can only deduct business

•

performance,

expenses and interest owed to a related

Enhanced oil recovery credit.

•

Qualified performance-based

•

party in the year the payment is included

Empowerment zone and renewal

compensation, and

in the income of the related party. See

community employment credit.

•

Income payable under a written,

•

sections 163(e)(3), 163(j), and 267 for

Indian employment credit.

binding contract in effect on February 17,

•

limitations on deductions for unpaid

Welfare-to-work credit.

1993.

•

interest and expenses.

Credit for small employer pension plan

startup costs.

The $1 million limit is reduced by

Section 291 limitations. Corporations

•

Credit for employer-provided childcare

amounts disallowed as excess parachute

may be required to adjust certain

payments under section 280G.

facilities and services.

deductions. See section 291 to determine

•

New York Liberty Zone business

the amount of the adjustment. Also, see

For details, see section 162(m) and

employee credit.

section 43.

•

Regulations section 1.162-27.

Low sulfur diesel fuel production credit.

Golden parachute payments. A portion

Line 16. Salaries and wages. Enter the

If the corporation has any of these

of the payments made by a corporation to

total salaries and wages paid for the tax

credits, figure each current year credit

key personnel that exceeds their usual

year, reduced by the amount claimed on:

before figuring the deduction for

•

compensation may not be deductible.

Form 5884, Work Opportunity Credit,

expenses on which the credit is based.

This occurs when the corporation has an

line 2,

•

agreement (golden parachute) with these

Form 8844, Empowerment Zone and

Line 15. Compensation of officers.

key employees to pay them these excess

Renewal Community Employment Credit,

Enter deductible officers’ compensation

amounts if control of the corporation

line 2,

on line 15. Do not include compensation

changes. See section 280G and

•

Form 8845, Indian Employment Credit,

deductible elsewhere on the return, such

Regulations section 1.280G-1.

line 4,

as elective contributions to a section

•

Form 8861, Welfare-to-Work Credit,

401(k) cash or deferred arrangement, or

Business start-up and organizational

line 2, and

amounts contributed under a salary

costs. Business start-up and

•

Form 8884, New York Liberty Zone

reduction SEP agreement or a SIMPLE

organizational costs must be capitalized

Business Employee Credit, line 2.

IRA plan.

unless an election is made to deduct or

amortize them. For costs paid or incurred

Do not include salaries and wages

Include only the deductible part of

before October 23, 2004, the corporation

deductible elsewhere on the return, such

each officer’s compensation on line 15.

must capitalize them unless it elects to

as elective contributions to a section

(See Disallowance of deduction for

amortize these costs over a period of 60

401(k) cash or deferred arrangement or

employee compensation in excess of $1

months or more. For costs paid or

amounts contributed under a salary

million, below.) Attach a schedule for all

incurred after October 22, 2004, the

reduction SEP agreement or a SIMPLE

officers using the following columns:

following rules apply separately to each

IRA plan.

1. Name of officer.

category of costs.

•

2. Social security number.

The corporation can elect to deduct up

If the corporation provided taxable

3. Percentage of time devoted to

to $5,000 of such costs for the year the

fringe benefits to its employees,

business.

corporation begins business operations.

such as the personal use of a car,

CAUTION

•

4. Amount of compensation.

The $5,000 deduction is reduced (but

do not deduct as wages the amount

not below zero) by the amount the total

allocated for depreciation and other

costs exceed $50,000. If the total costs

If a consolidated return is filed, each

expenses that are claimed elsewhere on

are $55,000 or more, the deduction is

member of an affiliated group must

the return (e.g., Schedule A, line 22 or

reduced to zero.

furnish this information.

line 31).

•

If the election is made, any costs that

Disallowance of deduction for

Line 18. Rents. If the corporation rented

are not deductible must be amortized

employee compensation in excess of

or leased a vehicle, enter the total annual

ratably over a 180-month period

$1 million. Publicly held corporations

rent or lease expense paid or incurred

beginning with the month the corporation

cannot deduct compensation to a

during the year. Also complete Part V of

begins business operations.

“covered employee” to the extent that the

Form 4562, Depreciation and

compensation exceeds $1 million.

For more details on the election for

Amortization. If the corporation leased a

Generally, a covered employee is:

business start-up costs, see section 195

vehicle for a term of 30 days or more, the

•

The chief executive officer of the

and attach the statement required by

deduction for the vehicle lease expense

corporation (or an individual acting in that

Regulations section 1.195-1(b). For more

may have to be reduced by an amount

capacity) as of the end of the tax year or

details on the election for organizational

called the inclusion amount. The

•

costs, see section 248 and attach the

An employee whose total

corporation may have an inclusion

statement required by Regulations

compensation must be reported to

amount if:

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Instructions for Form 1120-PC

Instructions For Form 1120-Pc - 2004 Page 11

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