Which Form 1120 C Adjustment 2023-2024

In this video, we're going to talk about EMP, which stands for earnings and profits. EMP is not actually defined in the tax code, but it measures a corporation's ability to pay out dividends. The goal is to track a corporation over time and determine how much earnings and profits have been built up. If a corporation has $100,000 in earnings and profits, when it distributes that amount to shareholders, it can be classified as a dividend. Calculating earnings and profits involves determining the current EMP and the accumulated EMP. Let's first focus on calculating the current EMP. To begin, you start with the corporation's taxable income for the year. This serves as the base. Then, you make adjustments by adding or subtracting certain items. For example, you add any income that was excluded from taxable income but is included for EMP. Life insurance proceeds are one such example. Additionally, you include deductions that are not allowed for taxable income purposes but are allowed for EMP. One such deduction is federal income taxes. Deductions allowed for taxable income, such as the domestic production activities deduction or dividends received deduction, need to be added to calculate the current EMP. The process can become complicated, involving items like deferred gains, depreciation adjustments, and more. However, by making all these adjustments to the taxable income, you arrive at the current EMP for the year. Let's look at an example to illustrate this concept. Imagine you start a company called Healthy Ice Cream. At the end of your first year of operations, you calculate a taxable income of $85,000. However, you also have $11,000 in municipal bond interest, which was exempt from federal income taxes. This interest needs to be added back when calculating the current EMP. Additionally, let's say you paid $30,000 in federal income taxes. Although this...