S Corp 2 - Income Basis Flashcards
How is the portion of share distribution determined?
Allocation = item x ownership% x portion of year owned
Where will separately stated items be reported?
Form 1120S and Schedule K.
Where will items in bucket reported?
Form 1120S page 1.
What happens to the characters of item when they flow through to individuals?
Retain their character.
What is the deduction that is allowed for C Corp, but not for S Corp?
Dividend received deduction.
What is loss limitations on flow though?
Losses may flow through to the shareholder, but only to the extent of the shareholder’s stock and loan basis.
How is loan basis created?
Only when shareholders directly loan funds o the S corporation.
Is loan basis also created when guaranteeing debt or S Corp going out and borrowing money?
No.
What happens to the losses in excess of deduction allowed?
Carry forward until there is basis to deduct the,.
When losses are used against basis and loan basis for deduction, what happens to those basis?
Reduced to 0.
Formula to determine the shareholder’s basis in the S Corp?
Initial basis \+ Stock purchases \+ Taxable and tax exempt income - Deductible and non-deductible expenses - Accumulated adjustments account distribution
What is the biggest difference between S Corp and Partnership basis formula?
Shareholder’s basis in S Corp doesn’t change by the change in liability like partnership because shareholders are not liable for liabilities.
What are 2 affects of flow through?
Flow through as income.
Flow through to basis.
What is the ordering rule for basis?
- Increase for all income items
- Decrease for distributions that are excluded from gross income
- Decreased for nondeductible, non-capital items
- Decreased for deductible expenses and losses.
When must shareholders include fringe benefits in income?
When they own more than 2% of the sock.
What are 4 fringe benefits that are included in income?
- Employer paid premiums to health and accident plans
- Benefits paid under employer-sponsored accident and health plans
- Cost of up to $50,000 of employer paid group term life insurance
- Meals and lodging provided by employer
What is the tax treatment of health and accident insurance premiums and other fringe benefits paid by S Corp for S Corp and shareholders?
S: Deductible as compensation.
Shareholders: Included in gross income on Form !-2.
Can S Corp deduct foreign income taxes? A net Sec. 1231 loss? Investment interest expense? The amortization of organizational expenditures?
All first 3 items no: Items having no special tax characteristics can be netted together in the computation of the S corporation’s ordinary income or loss, with only the net amount passed through to shareholders.
Can S Corp deduct charitable contribution?
No since they are subject to percentage limitations at the shareholder level, must be separately stated and are not deductible in computing an S corporation’s ordinary income or loss.
