S Corporations 2 of 2 (10)

Question 1

Accumulated Adjustment Account (AAA)

Answer 1

An account maintained to keep track of undistributed income and loss items for which the shareholders have already been taxed so that distributions can be distinguished between those that are taxable to shareholders and those that are distributions of income that have already been taxed. Amounts received out of AAA are not taxable when distributed.

Question 2

Built-In Gains Tax

Answer 2

A tax, calculated at the highest corporate tax rate, imposed on gains on disposals of assets that have appreciated prior to a tax-free conversion from a C corporation to S corporation status when those assets are sold within 5 years of the conversion.

Question 3

Qualified Business Income Deduction

Answer 3

A 20% from-AGI deduction for qualified businesses (i.e., certain nonservice, flow-through entities, but includes engineering and architecture businesses) to help equalize the tax benefits received by corporations due to a reduced flat tax rate of 21% enacted by TCJA in 2017, calculated as 20% of qualified business income (QBI), subject to a Wage/Property Limitation, which is the greater of 50% of wages, or 25% of wages + 2.5% of unadjusted basis of qualified property.

• QBI—generally ordinary business income/deductions, but NOT compensation paid to owners for services, cap gain/losses, dividends, or interest income other than business interest income.