Video: Consolidated Taxable Income Calculation

In this lesson, Nick Palazzolo, CPA, unpacks the intricacies of calculating consolidated taxable income—a fundamental concept for corporations with multiple entities. Dive deep into the step-by-step process used to adjust and combine the taxable incomes of individual group members to arrive at consolidated figures. Nick diligently works through practical examples, ensuring that the complex operations such as eliminating intercompany transactions, deferring gains and losses, and incorporating specific adjustments at the consolidated level become clear. By the end of this walkthrough, Nick's thorough explanation equips you with a strong foundation to tackle similar scenarios, which could emerge as simulation questions or multiple-choice queries on the exam.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Now that we've talked a lot about the preludes to consolidating our tax returns, let's talk about the process. How do we actually do it? And will you need to know this for the exam? Well, it's a possible sim. You could have a sim on consolidating these tax returns, and that's possible. Is it the most likely? No, but it's definitely something that you should know how to do. Also, could you see multiple choice questions on this? For sure. So definitely something to keep in mind, and we're going to run through lots of examples with numbers and making sure that you understand the calculations. Now first, we've got the steps. In order to calculate consolidated taxable income, we need to follow a series of steps that involve calculating and adjusting the taxable income of each group member, as well as making various other adjustments. First off, we're going to have to calculate the standalone taxable income of each member of the group. Okay, that's fair. Begin by calculating the taxable income for each member of the consolidated group as if they were filing separate tax returns. This involves determining each member's revenues, expenses, and deductions, as well as applying any applicable credits. Next up, we want to adjust each member's taxable income to remove the effects of transactions between members of the consolidated group. This is just eliminating any intercompany transactions, which again, this is something we for sure see on FAR, and just making that connection, because if you remember that from that exam, if you've taken it, then you can apply your knowledge here. After calculating the standalone taxable income for each member, adjustments must be made to account for transactions between group members, because these are not real transactions. If I make a sale

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C corporations

Module: 3 Concepts, 30 Videos

Corporations: Consolidated Tax Returns Overview

1:22

Introduction to Consolidated Tax Returns

2:25

Entities Not Able to File a Consolidated Return

3:20

Requirements for Affiliated Groups