M4 - Items from Other Entities

Question 1

How is S corp taxable income treated?

Answer 1

Each shareholder reports his/her pro rate share of the S corp’s taxable income; it is distributed equally

• i.e. $75k of taxable income for 5 shareholders
• $75,000/5 = $15,000

Question 2

Which of the following is subject to self-employment income tax?
- Guaranteed payments for services
- Ordinary income from an S corp

Answer 2

• Guaranteed payments for services
• Ordinary income from an S corp is income to the individual on their own tax return NOT subject to self-employment tax
• Ordinary income may be subject to self-employment tax if to a general partner

Question 3

Guaranteed payments made by a partnership to partners for services rendered to the partnership are:

Answer 3

• Deductible expenses on the US Partnership Return of Income, Form 1065, in order to arrive at partnership income (loss)
• Included on schedules K-1 to be taxed as ordinary income to the partners

Question 4

What must be separately stated on Form 1120S, US Income Tax Return for an S Corporation, Schedule K-1?

Answer 4

• Gain or loss from the sale of collectibles

Question 5

The S corporation’s section 1245 gain (and section 1250 gain), unearned revenue, and gross receipts or sales are a component of:

Answer 5

• “ordinary business income” or “net rental estate income (loss)” or “other net rental income (loss)”
• These are separately stated on Schedule K-1, BUT the various components (including section 1245 gain) are not separately stated

Question 6

Can a partner receive a salary for services rendered?

Answer 6

NO

Question 7

Can a shareholder in a S corp receive a salary for services rendered?

Answer 7

YES

Question 8

Basic deduction calculation for the qualified business income (QBI)?

Answer 8

20% x QBI

Question 9

How are taxpayers with taxable income below the taxable income limitation for the QBI treated (i.e. QTB & SSB)

Answer 9

They are treated the same if they are UNDER the taxable income limitation

Question 10

If a taxpayer is a SSTB ABOVE the taxable income limitation:

Answer 10

No QBI deduction is allowed

Question 11

What is the overall limitation to the QBI deduction?

Answer 11

Lesser of:
-Combined QBI deductions or 20% of taxpayer’s income in excess of net capital gain

Question 12

Allocations to shareholders are made on a:

Answer 12

-Per share, per day basis in accordance with ownership percentage

% ownership x operating income

Question 13

An S corp should classify payments to shareholders for services rendered as:

Answer 13

Deductible wages reportable on Form W-2