Corporate Capital Gains and Losses

Lesson: Corporate Capital Gains and Losses

In this lesson, Nick Palazzolo, CPA, introduces the treatment of capital gains and losses for corporations, contrasting it with the handling for individual taxpayers. He clarifies that corporate capital gains do not benefit from a preferential tax rate and are taxed like ordinary income. Nick also explains that corporate capital losses are only allowed to be offset against capital gains, detailing the carryback and carryforward rules with practical examples. By outlining a clear comparison, he simplifies the complex topic of capital gains and losses and prepares for a deeper dive into corporate taxation in upcoming lessons.

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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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All right, we got some capital gains and losses for corporations. This is just kind of like an introduction to it. We obviously have lessons fully dedicated to corporations, but let's show how the differences apply between corporations and individuals. Now, in the case of corporations, capital gains and losses are treated differently than for individuals. Corporate capital gains are taxed at the same rate as ordinary income, and there's no preferential tax treatment as in the case of individual taxpayers. Also, corporate capital losses can only be offset against capital gains, and any excess losses can be carried back three years or carried forward five years. We've got some examples here. So example one, corporate capital gain. Corporation has a capital gain of $10,000. This gain is taxed at the same rate as the corporation's ordinary income. So assuming the normal flat 21% corporate tax rate, the capital gain tax here is going to be $10,000 times 21%, giving us $2,100. Next up, example two, corporate capital loss. A corporation has a capital loss of $8,000 and a capital gain of $5,000 in the same year. The capital loss can be used to offset the capital gain, which results in a net capital loss of $3,000. This net capital loss can be carried back three years or carried forward five years to offset capital gains in those years. And then lastly, example three here, carrying forward a loss. A corporation has a capital loss of $20,000 and a capital gain of $10,000 in the current year. The capital loss offsets the capital gain, leaving a net capital loss of $10,000. The corporation can carry forward the remaining $10,000 loss for up to five years to offset any future capital gains. Pretty straightforward. And again, we will dive into this

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