R3 - S Corporations Flashcards
S Corporations may elect to be treated in a manner similar to what?
Partnerships
In effect, all the earnings or losses of the S corporation are passed through to whom?
the shareholders
Can you have different voting rights with common stock?
YES
Lane Inc., an S corporation, pays single coverage health insurance premiums of $4,800 per year and family coverage premiums of $7,200 per year. Mill is a 10% shareholder-employee in Lane. On Mill’s behalf, Lane pays Mill’s family coverage under the health insurance plan. What amount of insurance premiums is includible in Mill’s gross income?
$7,200
Each shareholder gets a K-1. Where do the individuals then report that information?
1040 Schedule E
True or false.
Eligible shareholders must be a corporation or partnership.
False
EXPLANATION: Eligible shareholders must be an Individual, estate, or certain types of trust. Neither corporations nor partnerships are eligible S/Hs.
If an S Corporation election is made by March 15, when is it effective?
Retroactive to beginning of year
What is the required S corporation tax year?
Dec. 31 is required year end
What form does the S corporation file?
1120S
What are three principal taxes imposed on S corporations?
1) LIFO Recapture Tax
2) Built-in Gains Tax
3) Tax on passive investment income
Are fringe benefits deductible for shareholder employees owning 2 percent of less of the S corporation?
YES
Are fringe benefits deductible for non-shareholder employees?
YES
What is the AAA (accumulated adjustments account) balance at the inception of the S corporation?
Zero
What is the AAA (accumulated adjustments account) increased by?
Increased by separately and non-separately stated income and gains (except tax-exempt income and certain life insurance proceeds)
Is the AAA (accumulated adjustments account) decreased by nondeductible expenses that relate to income other than tax-exempt income?
YES
Once an S corporation election is terminated or revoked, a new election cannot be made for how many years unless the IRS consents to an earlier election?
5 years
What is the taxability of distributions to shareholders in S corporations with no C corporation earnings and profits to the extent of basis in stock?
Tax-free; treated as return of capital
What is the taxability of distributions to shareholders in S corporations with no C corporation earnings and profits to the extent of any distributions in excess of the shareholder’s basis?
Taxable; treated as capital gain
True or false.
Both tax-exempt and taxable interest income increase a shareholder’s basis in S corporation stock.
True
Is long term capital loss included in the calculation of ordinary income?
NO
Are charitable contributions included in the calculation of ordinary income?
YES
Is gain or loss from the sale of collectibles separately stated on Form 1120S?
YES
Is unearned revenue separately stated on Form 1120S?
NO
For which type of entity is the owner’s basis increased by the owner’s share of profits and decreased by the owner’s share of losses but is NOT affected by the entity’s bank loan increases or decreases?
S corporation
True or false.
Interest and dividends increases the accumulated adjustments account of an S corporation.
True
