IRS Publication 542
The term IRS Publication 542 refers to a document published by the Internal Revenue Service (IRS) that provides information on the general tax rules that domestic corporations must follow. A business formed under a state law that refers to it as a joint-stock company or joint-stock association An insurance company Certain banks A business wholly owned by a state or local government A business specifically required to be taxed as a corporation by the Internal Revenue Code (IRC), such as certain publicly-traded partnerships Certain foreign businesses Any other business that elects to be taxed as a corporation such as a limited liability company (LLC) or an S-Corporation Corporations are treated differently than partnerships. Topics covered in the publication include, but aren't limited to the following: How 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 How to file and pay income taxes Accounting and recordkeeping methods Corporate deductions Distributions The IRS periodically updates the publication to reflect new tax laws and rules. The publication outlines the type of organizations taxed as corporations, the accounting methods used, the deductions allowed, and the tax tables that must be used. The IRS regularly updates the publication. The Internal Revenue Service is the government agency responsible for collecting taxes from the public and for enforcing tax laws. The term IRS Publication 542 refers to a document published by the Internal Revenue Service (IRS) that provides information on the general tax rules that domestic corporations must follow.
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What Is IRS Publication 542?
The term IRS Publication 542 refers to a document published by the Internal Revenue Service (IRS) that provides information on the general tax rules that domestic corporations must follow. IRS Publication 542 outlines the type of organizations that are taxed as corporations, the accounting methods typically used, the deductions allowed, and the tax tables to be used.
Understanding IRS Publication 542
The Internal Revenue Service is the government agency responsible for collecting taxes from the public and for enforcing tax laws. The agency's main purpose is to collect income and employment taxes as well as others such as corporate, estate, and gift taxes. Individuals and corporations use IRS forms in order to complete their annual tax returns. The IRS includes a series of instructions and publications to help guide taxpayers on how to complete these filings.
IRS Publication 542 outlines tax laws that govern what the agency calls ordinary domestic corporations — companies that conduct their business in the United States. The publication explains the tax law in plain language to make it easier to understand. However, the information given does not cover every situation and is not intended to replace the law or change its meaning.
Topics covered in the publication include, but aren't limited to the following:
The IRS periodically updates the publication to reflect new tax laws and rules. For instance, the IRS revised Publication 542 in January 2019, following changes to the tax law as a result of the passing of the Tax Cuts and Jobs Act (TCJA). These revisions addressed changes to the corporate tax rate along with the elimination of the corporate alternative minimum tax (AMT) for tax years after 2017.
Special Considerations
As mentioned above, this publication outlines the types of organizations that are taxed as corporations. As per the IRS, the following businesses formed after the year 1996 are taxed as corporations:
Corporations are treated differently than partnerships. Gains and losses that apply to partnerships are passed through to partners while the gains and losses from S Corporations are passed through to shareholders. Shareholders of corporations can receive income from the business itself in the form of dividends, which can be taxed both on the corporate level prior to distribution and on the individual level when they are sent to shareholders.
Related terms:
Alternative Minimum Tax (AMT)
An alternative minimum tax (AMT) places a floor on the percentage of tax that a filer may be required to pay to the government. read more
Antitrust
Antitrust laws apply to virtually all industries and to every level of business, including manufacturing, transportation, distribution, and marketing. read more
Bank : How Does Banking Work?
A bank is a financial institution licensed as a receiver of deposits and can also provide other financial services, such as wealth management. read more
Contributed Capital
Contributed capital, also known as paid-in capital, is the total value of the stock that shareholders have directly purchased from the issuing company. read more
Corporation
A corporation is a legal entity that is separate and distinct from its owners and has many of the same rights and responsibilities as individuals. read more
Deduction
A deduction is an expense that a taxpayer can subtract from his or her gross income to reduce the total that is subject to income tax. read more
Distribution
Distributions are payments that derive from a designated account, such as income generated from a pension, retirement account, or trust fund. read more
Domestic Corporation
A domestic corporation is a business that conducts its affairs in its home country, or in the state where it was incorporated. read more
Form 1120-S: U.S. Income Tax Return for an S Corporation
Form 1120-S: U.S. Income Tax Return for an S Corporation is used to report the income, losses, and dividends of S corporation shareholders. read more
Income Tax
Income tax is a tax that governments impose on income generated by businesses and individuals within their jurisdiction. read more