S Corp Taxation

Question 1

What are the requirements for holding S-Corporation status?

Answer 1

Only individuals, estates and trusts can be shareholders

Domestic only, no international S-corps or foreign shareholders

Up to 100 shareholders allowed, and only one class of stock allowed

Calendar tax year only

Question 2

How is an S-Corporation election made?

Answer 2

Election for S Corp status must be made by 3/15 and counts as being an S Corp since the beginning of the year

To make election, 100% of the shareholders must consent

Question 3

How is an S-Corporation terminated?

Answer 3

To terminate election, 50% of the shareholders must consent

No S Corp election allowed for 5 years after termination

S Corp termination effective immediately following an act that terminates status

Question 4

What items are not included in calculating an S-Corporation’s ordinary income?

Answer 4

These items are included on Schedule K, not in ordinary income:

Foreign Taxes paid deduction
No Investment Interest expense
Section 179 Deduction 
1231 Gain or Loss
Charitable Contributions
Portfolio Income (dividends or interest)

Question 5

How is S-Corporation shareholder basis calculated?

Answer 5

Beginning Basis
+Share of Income Items (including non-taxable income!)
-Distributions (cash or property)
-Non-deductible expenses
-Ordinary Losses (but don’t take income below zero)
= Ending basis

Question 6

What is the formula for an S-Corp Built-in Gains Tax?

Answer 6

FMV of Assets @ S-Corp Election Date - Adjust. Basis of Assets = Built-in Gain x 35% Corporate Rate