S-Corp Flashcards
who is eligible for an S- Corp
US Citizen Bankruptcy estates A Single member LLC can become an S-Corp Testamentary Trusts Revocable Trusts as part of an estate
What are some of the characteristics of an S-Corp
less than 100 member husband and wide are considered 1 5 generations of a family It is limited Liability Can only have 1 kind of stock -
How many must agree to become a S-Corp and then to dissolve
100% to become
50% to dissolve
What happens if you violate the rules of an S Corp
- you become ac-corp
- if more than 100 member or if someone is a foreign resident
- Then you can elect to be a S-corp for 5 years
Who is ineligible to be a S-Corp
- nonresident aliens
- C-corps
- Partenerships
- Multiple member LLC
- LLP
- Foreign Trusts
What is the S-corps tax year
calendar year
Are shareholder liable for the debt?
nope
Can Shareholder be employees
YES
Can C-Corps own stock in S- Corp? Can S-Corp own stock in a C-Corp?
C-CANT own stock in a S-CORP
S CAN own C-Corp stock
Can a S-Corp be a partner in a partnership?
YES
Can A S-Corp own 100% of the stock of an S-Corp subsidiary
YES
When must a company elect to be an S-Corp
By 3/15 - if not then they aren’t an S-Corp until the following calendar year
How can the IRS involuntarily terminate the S-Corp status
If any of the eligibility rules are broken
-If passive income is greater than 25% of gross receipts for 3 years in a row
Charitable contributions are what?
Separately stated item
Interest income
separately Stated
Dividend income from investments
Separately Stated
Rental Activities
Separately Stated
Section 179 Deductions
Separately Stated
Capital Gains and Losses
Separately Stated
Tax Credits
Separately stated
Foreign Taxes
Separately Stated
What are AAA
These are taxed earnings that have not been distributed.
Can AAA be negative
Yes - unlike shareholder basis
When can you use AAA and when can you not
If an S-Corp has never been a c-corp then they won’t have any AAA
It is only when a c-corp becomes a S-Corp - and the have E&P. If no E&P - no need for AAA
How much loss can you deduct from a S-Corp
You can only deduct a loss to the extent of your basis
The remaining loss can be carried forward indefinitely until the shareholder has enough basis to use it
what can both an LLC and a S-corp do
- both can use incentive stock options
- both avoid double taxation
- both have limited liability protection
What is the benefit of a s-corp and capital losses
With an s-corp you can claim the capital losses ( up to 3K) on your 1040. Net capital losses are carried forward to be used to offset capital gains
How much passive income can you have before you violate S-corp status
25% of income from passive investments of gross receipts for 3 consecutive years
Can a S-Corp’s owners include estates or trusts
yes - as long as they are US citizens or residents
When can and can not a S-Corp claim a BIG tax
they must have been a c-corp first and at the time of switching from C-corp to S-corp - they have a gain in the value (Basis 4, FMV 10) BIG would be 35% of 6
What are the at-risk rules
losses are limited to the investor’s amount at risk.
It is the amount of the shareholder’s investment plus any portion of entity liability that the shareholder will be liable in case of default
Can a S-corp have passive and active income
Yes! not more than 25% for the last 3 years average, but can have both
Can a S - Corp be owned by a bankruptcy estate
Yes they can
The sole shareholder of an S corporation contributed equipment with a fair market value of $20,000 and a basis of $6,000 subject to $12,000 liability. What amount is the gain, if any, that the shareholder must recognize?
The shareholder has contributed equipment subject to a $12,000 liability, which is greater than the shareholder’s adjusted basis in the equipment, and therefore the shareholder must recognize a gain in the amount of $6,000, which is the excess of the liability over the adjusted basis in the property.
What are the rules on health insurance premiums and fringe benefits
The are deductible in computing the entity’s ordinary income
If it is paid for by the entity for an employee who is also a 2% shareholder it is include din the employees gross income
If less than 1% it is NOT included in their gross income
Is a shareholder’s basis increased by income from either taxable interest and non taxable interest
Yes to both. tax exempt increases you basis, but is not taxable
Taxable interest increase your basis and is taxable
would collectibles gains or losses be separately stated
Yes - they would be because the get special tax treatment
can an S corp be an estate
Yes
Can an s corp have one class of stock with different voting rights
yes
Can an S corp have a share holder that is a grantor trust
yes
What do you do if you are an S corp that switches to a c corp
You annualize the income and then divide it by the number of days . You then multiply by the number of days you were a c-corp and the number of days you were a s corp
What are the rules for a partnership and a s corp
A partnership as a shareholder disqualifies S corp
A S corp can become a partner in a partnership
What is the rate that A S Corp uses to calculate BIG
It is based on the gain at the date of election of S corp at the highest corp tax rate
When you take a salary does it affect your basis in an s corp
No - it does not!
only distributions do
How do you allocate income or loss during year when ownership percentages change
You base it on a per share per day basis
when you elect to revoke S corp status what are the dates
Must be more than 50% must vote for it
If an effective date is not specified - status goes to the beginning of the year if done before 3/15
If done after - it is starts Jan the next year
What if you have income an d a loss - how do you calculate basis
your basis is first increased by ordinary income. Then it is decreased NEXT by distribution. If the tax basis at this point is at zero = the capital loss does not further reduce taxes.
So if you have a cash distribution that exceed this amount - it would pass through to you individual tax return
