# IRS Tax Knowledge Base

## Entity-Specific Rules

### C-Corporation (Form 1120)
- Flat 21% federal tax rate on taxable income
- Hobby loss rule (Section 183) does NOT apply
- Officer compensation must be "reasonable" (Section 162(a)(1)) -- IRS attacks both too-high and too-low
- Accumulated earnings tax (Section 531): 20% penalty above $250K credit ($150K for personal service corps)
- Personal holding company tax (Section 541): 20% on undistributed PHC income if 60%+ from personal service contracts and 5 or fewer owners
- Constructive dividends (Section 301(c)(1)): any personal benefit from corp = taxable dividend, no minimum threshold
- Home office: shareholders cannot deduct directly (TCJA suspended through 2025). Must use accountable plan (IRC 62(c)) where corp reimburses documented business-use percentage

### S-Corporation (Form 1120-S)
- Pass-through entity -- income flows to K-1 on personal return
- Reasonable officer compensation required (W-2)
- FICA on salary but not distributions
- No accumulated earnings tax concern

### Sole Proprietorship / Single-Member LLC (Schedule C)
- Reported on personal return
- Self-employment tax (15.3% on first $176,100 of net income for 2025)
- Home office simplified method: $5/sq ft up to 300 sq ft = $1,500 max

## Deduction Limits and Thresholds

### Advertising (Section 162)
- No statutory cap or percentage limit
- Must be "ordinary and necessary"
- Industry norm for tech/software: 10-20% of revenue
- Above 25%: elevated DIF score risk, need strong documentation

### Business Travel (Section 274)
- No dollar cap
- Substantiation required per Section 274(d): amount, time, place, business purpose
- 2025 per diem: $178/day standard CONUS ($110 lodging + $68 M&IE)

### Meals (Section 274(n))
- Business meals: 50% deductible
- Entertainment: 0% deductible (eliminated by TCJA 2018)
- Company-wide social events: 100% deductible

### Home Office (Accountable Plan)
- Requires: written plan, corporate resolution, square footage calculation, substantiation, return of excess
- Business-use percentage = dedicated office sq ft / total home sq ft
- Reimbursable: mortgage interest, HOA, utilities, insurance, repairs (pro rata), depreciation
- Typical range: 10-20% of home, yielding $10-25K deduction depending on housing costs

### Vehicle (Section 179 / 280F)
- 2025 standard mileage: $0.70 per business mile
- First-year depreciation cap: $12,200 + $8,000 bonus = $20,200 max
- Must keep contemporaneous mileage log

### De Minimis Safe Harbor (Treas. Reg. 1.263(a)-1(f))
- $2,500 per item/invoice without audited financial statements
- $5,000 per item with AFS
- Must elect annually on timely filed return

## Tax Rates (2025 -- verify annually)

### Corporate
- C-Corp: flat 21%

### Individual (MFJ)
| Bracket | Rate |
|---|---|
| $0 - $23,850 | 10% |
| $23,851 - $96,950 | 12% |
| $96,951 - $206,700 | 22% |
| $206,701 - $394,600 | 24% |
| $394,601 - $501,050 | 32% |
| $501,051 - $751,600 | 35% |
| $751,601+ | 37% |

### Standard Deduction (2025)
- MFJ: $30,000
- Single: $15,000
- Head of Household: $22,500

### Credits
- Child Tax Credit: $2,000 per qualifying child (under 17)
- SALT cap: $10,000 (state/local tax deduction limit)

## Filing Deadlines

### C-Corporation (Form 1120)
- Original: April 15 (calendar year)
- Extension (Form 7004): October 15 (automatic 6-month)
- Tax PAYMENT still due April 15 even with extension

### Individual (Form 1040)
- Original: April 15
- Extension (Form 4868): October 15

### Delaware Franchise Tax
- Corporations: March 1
- LLCs: June 1

## Penalties for Late Payment
- Late payment: 0.5% per month of unpaid tax
- Interest: federal short-term rate + 3% (approximately 8% annually in 2025)
- Combined: roughly $50/month per $4,000 owed

## Foreign Payment Compliance
- W8-BEN: required from each foreign contractor. Valid for 3 calendar years from signing
- 1042-S: required for US-source income paid to foreign persons. Due March 15
- Exception: services performed entirely outside the US = foreign-source income under IRC 862(a)(3), not subject to withholding
- FBAR (FinCEN 114): required if aggregate foreign account balances exceed $10,000 at any point. Due April 15, auto-extended to October 15
- OFAC: screen all payees in sanctioned countries against SDN list

## Key Legal References
- IRC 62(c): accountable plan requirements
- IRC 162: ordinary and necessary business expenses
- IRC 183: hobby loss rule (does NOT apply to C-Corps)
- IRC 274: disallowance of entertainment; substantiation for travel/meals
- IRC 301(c)(1): constructive dividends
- IRC 531-537: accumulated earnings tax
- IRC 541-547: personal holding company tax
- IRC 862(a)(3): foreign-source income for services outside US
- IRC 1441: withholding on foreign persons
- IRC 7872: below-market loans (imputed interest on shareholder loans)
- Paperwork Burden Reduction Act (Dec 23, 2024): 1095-C auto-furnishing eliminated

## 1095-C: NOT Required for Filing
As of tax year 2024 forward, the Paperwork Burden Reduction Act eliminated the requirement for employers to automatically furnish Form 1095-C. Employers may post a notice instead. The form is never attached to Form 1040. The individual mandate penalty has been $0 since 2019 (TCJA). Florida has no state mandate. Taxpayers should NOT delay filing waiting for this form.
