S Corporation: Determination of Ordinary Income/Loss and Separately Stated Items

Question 1

Whenever an S corporation terminates its status (and becomes a C corporation)

Answer 1

a daily allocation of the income (or loss) must be made

Question 2

Dividend income

Answer 2

is not part of net business income

Question 3

what must be separately stated on the tax return?

Answer 3

Any income, losses, deductions, or credits that might affect the tax liability of a shareholder in a different manner depending on any other factors in their particular tax situation

Question 4

what increases the accumulated adjustments account of an S corporation?

Answer 4

Generally, income items such as interest and dividends will increase the AAA (accumulated adjustments account) of an S corporation

Question 5

what decreases the accumulated adjustments account of an S corporation?

Answer 5

charitable contributions

Question 6

what has no effect on the accumulated adjustments account of an S corporation?

Answer 6

Capital contributions and distributions

Question 7

The shareholders’ pro rata share of deductible items reported separately on IRS Schedule K-1 includes (but is not limited to) the following items

Answer 7

Expenses incurred for the production of income instead of in a trade or business
Ordinary business income (loss)
Net rental real estate income (loss)
Interest income
Dividends
Royalties
Charitable contributions
IRC Section 179 deduction
Net short-term capital gain or loss
Foreign taxes paid to the government of a foreign country

Question 8

What is not passed down on the shareholder level

Answer 8

Depreciation expense

Question 9

What is passed down on the shareholder level

Answer 9

Capital Loss
Charitable contributions
Additional depreciation (Macrs over book)