Module 5: Items From Other Entities

Question 1

Business Entities and how they flow-through

Answer 1

1. Partnership: Flow through to each partner on Form 1065 K-1 (schedule E supplemental income and loss)
   -reports business and losses on 1065, and allocates partnership income and loss to each partner and percentage they have
2. S Corp: Flow-through to report on 1120S, K-1
   -Allocated to the shareholders of S-corp on per-share, per-day basis.
   Ex: days of year had divided by year times the amount possessed
   Note: Taxed flow-through like partners where include separate items taxed whether distributed to them or not during year
   -Services difference between partners and s-corps (partners are taxed as self-employment on services performed while S-corps pays employer portion of services and shareholders pay employee portion.
3. Sole Proprietor: Flow through to the individual tax form 1040, on its schedule C business gains and losses
4. C Corp: Separate tax paying, NOT flow through, on a 1120

Question 2

Estates and Trusts

Answer 2

Fiduciary: used for trusts and estates and classifies receipts and…
-distributions as principal “corpus” or income
Income to beneficiaries:
-Taxed at the highest DNI (distributive net income)