S Corporations 1 of 2 (9)

Question 1

S Corporation

Answer 1

A closely held corporation that, upon meeting certain qualifications, elects to be treated as a pass-through entity for tax purposes such that its income is not taxable to the corporation, but each shareholder is taxed on a proportionate share on a Schedule K-1.

Question 2

Qualifications for S Corporation Status

Answer 2

In order for a corporation to elect S corporation status it must have (Simple & Small):

• Only one class of stock, with profits and losses allocated proportionately according to ownership (Simple).
• No more than 100 shareholders, with family members and their spouses being treated as a single shareholder, all of whom must be U.S. residents or citizens and natural persons—thus, entities, other certain trusts, estates, and tax-exempt corporations, may not be shareholders (Small).

Question 3

Separately Stated Items

Answer 3

Items that are reported separately on the tax return of an S corporation (1120S) because of their tax treatments, enabling shareholders to each recognize their proportionate share of each item and handle it properly on their tax returns. They include capital gains and losses, Section 1231 gains and losses, dividends and interest, passive activities, charitable contributions, Section 179 depreciation elections, and tax credits.

Question 4

Passive Investment Income

Answer 4

Gross receipts derived from dividends, interest, royalties, rents, annuities and gains from sales of securities.