R5 Flashcards
Shareholder’s basis is affected by
Both separately and non separately stated items on the K1
Adjusted in the following order:
- increased for income items and excessive depletion
- decreased by distributions
- decrease for nondeductible,non-capital expenses and depletion
- decreased for items of loss and deduction
Election for S Corp status:
- All shareholders must consent (unanimous not majority)
- to be valid for entire current yr, election must be made on/ before March 15th or will not be considered S corp until 1/1 of following yr
S corp income is allocated among shareholder’s:
On a per day, per share basis
S Corp status will terminate when:
- Holders of a majority of the stock consent to voluntary termination
- Corporation fails to meet any of the eligibility requirements
- More than 25% of the corp’s gross receipts come from passive activities for 3 consecutive yrs
Eligibility requirements of an S Corp:
- Domestic Corp
- One class of stock (differences in voting rights allowed)
- Shareholders must be individuals, estates or trusts
- 100 shareholder limit
Items separately listed on Schedule K:
- Ordinary income (=nonseparately stated income)
- Rental income/loss {not rent exp}
- Portfolio income
- Section 1231 G/L
- Charitable contributions
- Section 179 deduction
- Foreign taxes
- Tax-exempt interest
Net business income
Non-separately stated- Ordinary income
Unrealized built-in gain:
When a C corp becomes an S corp & FMV of assets exceeds the adj basis of assets @ election date
**Only if originally held C corp status
How much loss can shareholder deduct on personal return?
-Limited to shareholder’s basis in Corp plus direct shareholder loans to the corp
Accumulated adjustments account is increased by:
Separately and non-separately stated income
-NOT affected by contributions from shareholders
When can a terminated S Corp reelect the status:
Fifth yr from current tax yr
Value of fringe benefits (health insurance) is included in income when:
-S corp shareholder owns >2% of S corp stock
not deductible by S Corp
Initial basis of a partner’s interest:
Cash
+Property (adj basis)
-Liabilities (assumed by other partners)
+Services (FMV)
+Liabilities (assumed by incoming partner)
=Beginning Capital Account
Initial basis of a partner’s interest:
Cash
+Property (adj basis{increased by any gain recognized})
-Liabilities (assumed by other partners)
+Services (FMV)
+Liabilities (assumed by incoming partner)
=Beginning Capital Account
*For Liabilities- remember to multiply by % ownership
Shareholder recognizes a gain on property contributed when:
Liabilities contributed are greater than the adj basis of the property contributed
Partnership terminates when:
- 50% or more of interest changes hands within one yr
- when there are fewer than 2 partners
- when operations cease
When remaining partners carry on business after termination of partnership:
- deemed distribution of assets to remaining partners and purchaser
- hypothetical redistribution of assets to new partnership
Income recognized by shareholder contributing services:
- Ordinary Income
- Amt = % interest * FMV of corp net assets
Holding period for a partner’s interest:
=partner holding period of property contributed when capital asset or section 1231
=date of contribution if property is an ordinary income asset (inventory)
Required tax yr for a partnership:
-Tax yr of one of more partners with more than 50% interests in profits and capital
When a corp sells property contributed by a shareholder:
- Shareholder gain = difference in adj basis and FMV
- Remaining gain is allocated equally among ALL partners
Partnership organizational costs & start up costs:
- $5,000 deductible in currents yr, rest is amortized over 180 months
- only fees to prepare partnership are includable
Method used to depreciate partnership is elected by:
- the partnership
- may use any method approved by the IRS
Individual partner (not partnership) makes election for:
-deduction or credit for taxes paid to foreign countries
