S-Corp Flashcards by Kirsten Years

who is eligible for an S- Corp

US Citizen
Bankruptcy estates
A Single member LLC can become an S-Corp
Testamentary Trusts
Revocable Trusts as part of an estate

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What are some of the characteristics of an S-Corp

less than 100 member
husband and wide are considered 1 
5 generations of a family
It is limited Liability
Can only have 1 kind of stock -

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How many must agree to become a S-Corp and then to dissolve

100% to become

50% to dissolve

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What happens if you violate the rules of an S Corp

you become ac-corp
if more than 100 member or if someone is a foreign resident
Then you can elect to be a S-corp for 5 years

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Who is ineligible to be a S-Corp

nonresident aliens
C-corps
Partenerships
Multiple member LLC
LLP
Foreign Trusts

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What is the S-corps tax year

calendar year

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Are shareholder liable for the debt?

nope

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Can Shareholder be employees

YES

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Can C-Corps own stock in S- Corp? Can S-Corp own stock in a C-Corp?

C-CANT own stock in a S-CORP

S CAN own C-Corp stock

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Can a S-Corp be a partner in a partnership?

YES

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Can A S-Corp own 100% of the stock of an S-Corp subsidiary

YES

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When must a company elect to be an S-Corp

By 3/15 - if not then they aren’t an S-Corp until the following calendar year

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How can the IRS involuntarily terminate the S-Corp status

If any of the eligibility rules are broken

-If passive income is greater than 25% of gross receipts for 3 years in a row

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Charitable contributions are what?

Separately stated item

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Interest income

separately Stated

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Dividend income from investments

Separately Stated

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Rental Activities

Separately Stated

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Section 179 Deductions

Separately Stated

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Capital Gains and Losses

Separately Stated

Tax Credits

Separately stated

Foreign Taxes

Separately Stated

What are AAA

These are taxed earnings that have not been distributed.

Can AAA be negative

Yes - unlike shareholder basis

When can you use AAA and when can you not

If an S-Corp has never been a c-corp then they won’t have any AAA

It is only when a c-corp becomes a S-Corp - and the have E&P. If no E&P - no need for AAA

How much loss can you deduct from a S-Corp

You can only deduct a loss to the extent of your basis | The remaining loss can be carried forward indefinitely until the shareholder has enough basis to use it

what can both an LLC and a S-corp do

- both can use incentive stock options - both avoid double taxation - both have limited liability protection

What is the benefit of a s-corp and capital losses

With an s-corp you can claim the capital losses ( up to 3K) on your 1040. Net capital losses are carried forward to be used to offset capital gains

How much passive income can you have before you violate S-corp status

25% of income from passive investments of gross receipts for 3 consecutive years

Can a S-Corp's owners include estates or trusts

yes - as long as they are US citizens or residents

When can and can not a S-Corp claim a BIG tax

they must have been a c-corp first and at the time of switching from C-corp to S-corp - they have a gain in the value (Basis 4, FMV 10) BIG would be 35% of 6

What are the at-risk rules

losses are limited to the investor's amount at risk. It is the amount of the shareholder's investment plus any portion of entity liability that the shareholder will be liable in case of default

Can a S-corp have passive and active income

Yes! not more than 25% for the last 3 years average, but can have both

Can a S - Corp be owned by a bankruptcy estate

Yes they can

The sole shareholder of an S corporation contributed equipment with a fair market value of $20,000 and a basis of $6,000 subject to $12,000 liability. What amount is the gain, if any, that the shareholder must recognize?

The shareholder has contributed equipment subject to a $12,000 liability, which is greater than the shareholder’s adjusted basis in the equipment, and therefore the shareholder must recognize a gain in the amount of $6,000, which is the excess of the liability over the adjusted basis in the property.

What are the rules on health insurance premiums and fringe benefits

The are deductible in computing the entity's ordinary income If it is paid for by the entity for an employee who is also a 2% shareholder it is include din the employees gross income If less than 1% it is NOT included in their gross income

Is a shareholder's basis increased by income from either taxable interest and non taxable interest

Yes to both. tax exempt increases you basis, but is not taxable Taxable interest increase your basis and is taxable

would collectibles gains or losses be separately stated

Yes - they would be because the get special tax treatment

can an S corp be an estate

Yes

Can an s corp have one class of stock with different voting rights

yes

Can an S corp have a share holder that is a grantor trust

yes

What do you do if you are an S corp that switches to a c corp

You annualize the income and then divide it by the number of days . You then multiply by the number of days you were a c-corp and the number of days you were a s corp

What are the rules for a partnership and a s corp

A partnership as a shareholder disqualifies S corp A S corp can become a partner in a partnership

What is the rate that A S Corp uses to calculate BIG

It is based on the gain at the date of election of S corp at the highest corp tax rate

When you take a salary does it affect your basis in an s corp

No - it does not! only distributions do

How do you allocate income or loss during year when ownership percentages change

You base it on a per share per day basis

when you elect to revoke S corp status what are the dates

Must be more than 50% must vote for it If an effective date is not specified - status goes to the beginning of the year if done before 3/15 If done after - it is starts Jan the next year

What if you have income an d a loss - how do you calculate basis

your basis is first increased by ordinary income. Then it is decreased NEXT by distribution. If the tax basis at this point is at zero = the capital loss does not further reduce taxes. So if you have a cash distribution that exceed this amount - it would pass through to you individual tax return