S Corp - Sec 3 Flashcards Preview

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Flashcards in S Corp - Sec 3 Deck (25)
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1
Q

1120S

A

3/15

Formally bc shareholders have limited liability

Similar to partnership

2
Q

K1

A

Represents shareholders portion

Flow through to schedule E then to face of 1040

Not tax paying entity

S Corp dividends not taxable

3
Q

SCorp

A

Small and simple

No more than 100 shareholders

Domestic corp

All shareholders residents or citizens

Each share gets equal amount

Some have voting and some don’t

4
Q

Formation

A

No tax in creation if control - over 80%

Services or less than 80 then taxable at FMV

Similar to c Corp

Carryover basis and carryover holding period for cash and property

To become an s Corp is a unanimous election- has to be before 3/15 (2.5m) to be considered and retroactive for whole year. calendar or fiscal - if after than c Corp then next year will be a Corp.

You will get accumulated earnings and profits as c Corp -

To get out it takes 50%

5
Q

Operation of S Corp

A

Initial contribution

\+% income 
% loss 
Separate stated 
Municipal bond 
Equity method: investment follows equity balance, when you have income you make money then s Corp makes money, basis goes up . 
  • distributions received

(2 other factors talked about later)

Equals net basis

Dividends not taxed bc already taxed when earned

6
Q

Basis

A

Can’t go negative ,

7
Q

Ordinary assets

A

Current assets

8
Q

1231 assets

A

Non current

Depreciable
Amortizable
Land used
Property plan equipment

9
Q

Capital assets

A

A capital gain or loss, not 1231 or ordinary

If it’s a gain you get a capital treatment,
If it’s a loss then ordinary

Loss gets carried over and proportion share is taken until zero.

10
Q

Income

A

Ordinary income or loss plus muni bond interest plus separately stated items …
Calculate an average daily basis :on average, in a daily basis, how much stock did you own . That’s the percent you’ll get .

Ex. Calculate by day . So income times days , then x your percentage of stock is your portion of income

11
Q

Losses

A

Basis limitation, losses are limited to amount invested plus amount loaned to company (aka debt basis)

Losses can’t go below 0
Losses are suspended until SH has sufficient basis to absorb the loss

12
Q

A Corp basis

A

Basis is often equal to amount at risk
At risk rules: losses are further limited by the investors amount at risk . Under irc 465 similar to basis rules . Amounts at risk do not include amounts for which the investors bears no economic risk of loss like non recourse loans and loans from certain related parties

13
Q

Passive activity loss

A

Passive losses are limited to passive income

14
Q

Municipal bond interest

A

Not taxable

But SCorp is worth more with it so shouldn’t basis go up? Yes

Increases basis but not taxable .

Not considered taxable income

15
Q

Distributions received

A

Reduces basis , but not taxed when received

Dividends already taxed when money earned on k-1

When they pay out the dividend money it just reduces basis bc its an accumulated adjustment account- triple a: represents money that was earned as an S Corp

16
Q

C before S

A

If you make money as c Corp it’s Accumulated Earnings and Profits

Money as S Corp is triple A

So when s Corp starts paying money out, first it’ll come out of triple A which isn’t taxable. The next amount out of AEP which was never paid out so would be dividend income . After that the initial contribution would be next to get paid out if needed, which is a return of basis, not taxable since it’s already after tax dollars used to buy something .

If you get more than initial, that’s a capital gain .

17
Q

Separately stated items ***

A

Subject to certain limitations on individual tax return

Capital loss and charitable sub Jeff to 50% and 5years forward

Ex capital loss limitation of 3k we have to keep track throughout the years. (50% agi 5years carryover)

Example: you get a 10% of all these deductions, but you need to bring them into 1040 separately- video . They go into different schedules

18
Q

Limitations

A

Capital gains and losses: 3k net loss

1231 gains and losses: are non current assets, gains are capital , losses are ordinary . Capital gain goes vs capital loss no more than 3k.

Section 179 is depreciation : 50k??

Rent and royalty income : passive activity loss is no more than 25k and phases out 50cents per dollar over 100k

Charitable contributions: 5 yrs 3k????

Interest income and interest expense get netted out .

Dividend Interest- limitation

19
Q

Ordinary business income ***

A

Before separately stated items

Schedule k is 100% of a Corp.

K1 represents SH percentage

Flows to schedule e

20
Q

Distributions for SH

A

Distribution reduces net basis

21
Q

AAA

A

Represents the cumulative total of industry cited net income items for an s Corp for years after ‘82

Not taxable bc already taxed in k1

22
Q

AEP

A

Are profits that were accumulated and never taxed during C Corp taxable years
.

Taxable as divided income

23
Q

Return of basis

A

Third used for distribution, if used then extra money would be capital gain

24
Q

S Corp termination

A

Rule violation : shareholder non resident -
Over 100 shareholders

Or 50%

Once terminated can’t be s Corp for 5 years

SEC section 1362, termination will occur if an s Corp has passive investment income exceeding 25% if it’s gross receipts , for each of 3 consecutive years. And if during the Corp was a corporation with AEP attributable to prior c Corp status (passive income)

Can happen anytime during year resulting s Corp short year and c Corp short year . No special election, income allocated between the 2 based on a 365 Day year

25
Q

Built in Gains tax - BIG

A

If c Corp elect to be a Corp, and fmv if the assets exceeds their basis then difference is a net unrealized built in gain .

S Corp has better rate for gains . Individual capital gains rate