Corporation

The rules you must use to determine whether your business is taxed as a corporation changed for businesses formed after 1996. However, if your business was formed before 1997 and taxed as a corporation under the old rules, it will generally continue to be taxed as a corporation.

Businesses formed after 1996. Certain businesses formed after 1996 are taxed as corporations. They include the following.

• A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic.
• A business formed under a state law that refers to it as a joint-stock company or joint-stock association.
• Any other business that elects to be taxed as a corporation by filing Form 8832.

For more information, see the instructions for Form 8832, Entity Classification Election.

Forming a corporation. A corporation is formed by a transfer of money, property, or both by prospective shareholders in exchange for capital stock in the corporation.

If you transfer property (or money and property) to a corporation solely in exchange for stock in that corporation, and immediately thereafter you are in control of the corporation, the exchange is usually not taxable.

If, in an otherwise nontaxable exchange, you also receive money or property other than stock, you may have to recognize gain. See Publication 544 or Publication 542 for more information.

Corporate tax. Corporate profits are taxed to the corporation. If the profits are distributed as dividends, the dividends are taxed to the shareholders.

In figuring its taxable income, a farm corporation generally takes the same deductions that a noncorporate farmer would claim on Schedule F (Form 1040).

Form 1120 and Form 1120-A. Unless exempt under section 501 of the Internal Revenue Code, all domestic corporations (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. A corporation must generally file Form 1120 to report its income, gains, losses, deductions, credits, and to figure its income tax liability. However, a corporation may file Form 1120-A if its gross receipts, total income, and total assets are each under $500,000 and it meets certain other requirements. For more information, see the instructions for Forms 1120 and 1120-A.

More information. For more information on corporations, see Publication 542.

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