Partnerships, S Corps, Etc: Partnerships, S Corps Flashcards
Do S corps pay income tax on earned income?
No.
Is tax-exempt income earned by an S Corp taxable at the shareholder level?
No.
Can an S corp be a shareholder of another corp?
No.
Are S corp losses deductible by owners against their ordinary taxable income?
Yes, if the owner has a sufficient tax basis in the investment.
Schedule K
used to indicate how specified revenues and expenses of the partnership are passed through to the various partners.
Schedule K-1
- Indicates to the individual partners their share of the various income items reported by a partnership.
- This excludes items such as charitable contributions and interest revenue which directly pass to the partners.
How does buying a new LT asset affect a partner’s at-risk basis in the partnership?
- The at-risk basis is increased by the amount of new debt (purchase price - cash paid) * ownership %.
- Total at-risk basis is your contribution + (new debt * ownership %).
When a partner enters a partnership or S Corp by contributing land and a building, what G/L can the partner recognize?
None. Because of the legal connection between a partner and a partnership, the tax basis normally does not change as a result of a conveyance.
If A bought land on 6/6/11, then A and B form a partnership or S Corp on 6/6/12, when does the holding period for the land begin according to the partnership?
- On 6/6/11, when the land was bought.
2. Because the tax basis stays the same, the holding period should also stay the same.
Partner’s Capital Basis in Partnership at the end of year 1
Cash contributed
+ Tax basis of LT assets contributed
+ ownership % share of partnership income
- cash distribution
One of the partners in a partnership sells his share of the business. According to the tax rules, this sale was large enough to create a partnerhsip termination of the old partnership. What is the significance of this termination?
The assets are deemed to be distributed to the remaining partners and then recontributed to form the new partnership.
Is the basis of an S corp for a shareholder increased by tax-exempt income?
Yes.
A new partner’s basis in the partnership when the partner conveys the following:
- Land worth $400k.
- w/liability of $100k.
- The land gives the partner 40% ownership.
The partner's basis is: 400k -100k (liability) \+ 40k (partner is 40% liable for liability) =340k basis.
If the basis received exceeds the owner’s basis in the business, then the basis of the items received…
must be reduced to the owner’s basis.
If the partner receives a cash distribution in excess of his/her basis the partnership, then the basis of items received…
is 0.
If A receives a cash distribution in excess of his/her basis the partnership, then the gain recorded by A is…
- the cash distribution in excess of partnership,
2. Does not include the amount of the land received b/c the land has no tax basis to the partner.
When the land received by A exceeds A’s basis in the partnership, A recognizes the land with a tax basis of…
- A’s basis in the partnership.
- When the basis of the property received is larger than the basis reported by the partner for the partnership as a whole, the upper limit of recognition for the partner is the basis in the partnership.
normal rule for nonliquidating distributions
the tax basis is retained so that no income is recognized by either the partnership or the partner
normal rule for liquidating distributions
- tax basis of the partnership is first removed from the records of the partner and the received property is then recorded at this same amount.
- tax basis in partnership - cash distribution = new basis in partnership
Taxable income from C Corp ownership
Dividend income = distribution amount * ownership %
Taxable income from S Corp ownership
S corp profits * ownership %.
income items that pass directly to the partners
- rent and royalty income, 2. capital gains and losses,
- dividend and interest revenue,
- and charitable contributions
- All other items are lumped together to arrive at an ordinary income figure that is also allocated to the individual partners.
reporting your share of partnership/S corp income when:
1. You own 10% of the company.
2. The company reports $5,000 capital gain, $5,000 interest revenue,
$50,000 sales of inventory
You report $500 capital gain, $500 interest revenue, $5,000 ordinary income (10% of everything in their respective sections).
What can the partnership deduct as an expense: a set salary given to the partner, the distribution of partnership income to the partner, or both?
The set salary given to the partner.
partner’s share in income
(partnership NI + reductions removed) * partnership income
How does the removal of a reduction affect NI?
It raises NI.
items removed to determine partner’s share in income
[Revenue
- CoGS
- Utility exp.
- Depr. exp]
- ownership %.
Are cash distributions made to a partner considered taxable income?
No.
What percentage of the stock of an S corporation must the owners wanting revocation of the S corp’s hold before revocation will take place?
More than 50%.
How much of a business loss can a partner deduct?
Partnership NI * ownership %.
G/L recognized by partner A in partnership liquidation where A receives only nonmonetary assets
None. Normally, in a partnership liquidation where the partner only receives nonmonetary assets, the partner picks up the new property at the basis of the old partnership so that no gain is recognized.
Is rent expense deductible by the business?
Yes, but rent income passes through to the partners.
G/L recognized by partner when s/he conveys an LT asset to the partnership with debt
If debt > tax basis, taxable gain recognized = debt - tax basis.
