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Flashcards in S Corps Deck (16):

Impact on Basis of S corp of Losses when Owner doesn't have enough in capital account.

I give up, I answer it and it says: It's asking for the basis in the stock, not his basis in the S corporation - what is the difference?

For S corps there's 2 basis: Stock Basis and Debt Basis
see back

Get debt basis for money you loan to corporation
1st must reduce stock basis to 0 and then can apply losses to debt basis

I think if you run the debt basis to 0 and it's repaid, then it's a cap gain, not sure though

Partnerships do not have this distinction


Debt basis versus stock basis. So I got the next question wrong because of this.
But anyway...

You can only deduct S Corporation Losses to the extent of _______, does this include your debt basis.

Only can deduct s corporation losses to the extent of your total basis (stock and debt) the rest is carried over. I don't know the reason for the distinction of the debt basis. Is it an ordinary loss or a capital loss? Where does it go?


Separately stated items for an S corp include
-interest expense on investments
-amoritized org costs
intangible drilling and development cost s corp elects to expense
charitable contributions

Amoritized organizational cost over 15 years, 5K in year of formation, there's another category org and start-up I think

anyway, all the others: interest on investments, expense of intangibles, charitable are separately stated

get that: interest expense on investments or 179 is separately stated, regular interest is deductible from s corps ordinary income


Any expense of the S corporation that is not deductible in figuring it's income and not properly chargeable to the capital account.

WTF does that mean, question is asking whether it reduces basis. Guess what it does.

Maybe it has something to do with inside/outside basis, IDK


S corp can't decrease basis for depletion that

exceeds the basis of the property being depleted


That stock versus debt basis for S corps.

If the question says stock basis I guess it means stock basis and if they mention a loan to the owner, I guess you're supposed to know that you need to added it to the stock basis and you can deduct more losses (the stock basis plus the debt basis)

Again I may have to stop doing Gleim and switch to Ninja here, too time consuming with the details.


If you have to ball park an S corp penalty:

$_____ x # of _____ x days after

$200 x # of Shareholders X days after March 15th


Form for filing taxes is _______
Due date

2 1/2 months after end of tax year or March 15th


For an S corp, is interest expense a separately stated item?

I thought no, but apparently yes.


Separately stated items Yes or No
Interest Income
Contributions to Qualifying Charities
Section 179

Sales - No
Rent - No
Entertainment - No but only 50% deductible
Interest Income - Yes, interest income is a separately stated item
Charities - Yes
179 - Yes
Depreciation - No

I wonder what happens to the other half of the entertainment expenses?


Interest and S Corps - Separately stated
Interest Income
Investment Interest Expense
Section 179
Regular Interest

Income from Interest is SS
Investment Income SS
179 SS - not interest but anyway
REgular interest - IS NOT SS


WHat type of entities add the debt of the entity to the basis of the owners.

Only partnerships and LLC's

S Corps and C Corps don't


When an S Corp has accumulated earnings, E and P from when it was a corporation how are distributions assigned?

Dividends from the E and P
Return of Capital
Capital Gains

Now I'm confused because maybe it was in corps I remember anything earned in the current year that's distributed is a dividend, Even if have losses to carryover, guess it's different with S corps because all distributions reduce basis.


REmember before you account for the distributions as a return of capital you have to ______ to the basis.

Add in the current years distribution of income. Then it's
EArnings and Profits (remember to take portion not whole thing)

But not fucking really: BEcause the answer says E and P before ROC, but then it places that portion of the ROC that is from current AAA, then the E and P, then the rest of the ROC, then capital capital gains (if you run out of basis)

Ridiculous, except to say that it's like I was comparing before the current year earnings are taken off the basis first, then the E and P, then the net of that off the remaining basis.


Let's get this down:
AAA - Accumulated Actual Income (this is the pass through stuff, you're paying taxes on it as you earn it, so that's why this comes first and is separately referred to)

OAA - This keeps track of things like tax exempt interest income which you will never owe tax on but it's still part of your basis

AEP - the Earnings and Profits from a C corp that you need to declare as dividends

turnover card

So the S corp with E and P distributes a bunch of money. The first part is taxable, it's going out as a pass through on your K-1. Though you do have to add it your basis.

The second question if there is any left over is do you have E and P, then it gets applied here and reported as taxable dividends.

Now... you have your basis that's been increased by the current year income, now take off what you distributed from that, then take off the e and p, you still got more money, this is where the return of capital comes in.

When your basis reaches 0, the rest is a capital gain.


S Corporations Distribution: BODL
Ordinary Income

Craig Basis: 20K. Income 5K. Capital Loss 10K. Distribution: 35K
What's Craigs Gain? IOW where do you have to stop and what do you have to carry over.

The point is here that if you are underwater (which means you actually made money because you got more back then you had in) after the distribution any capital losses are not deductible and have to be carried over.

Get it: Capital Losses don't offset gains from distribution.