S Corporations

Question 1

computing shareholders basis in S Corps stock

Answer 1

Initial basis
+ income items (separately and non separately stated times: included tax free income)
+ additional shareholder investments in corporation stock
- distributions to shareholders
- loss or expense items
= ending basis

Note: S corporation debt does not increase shareholders basis (at risk)

Question 2

S Corporation tax year

Answer 2

Election takes place by March 15 (retroactive to beginning of year). Conset of a new shareholder is not required

Question 3

Pass key

Answer 3

S corporation shareholder is permitted to deduct on a personal tax return the pro rata share of the S corporation loss subject to the following limitation:

loss limitation: basis + direct shareholder loans - distributions

Question 4

S corporation status termintaes

Answer 4

C corporation E and P - 3 stikes and your out:

more than 25 percent of corporations gross receipts come from passive investment income for three consecutive years and the corporation has C corporations earnings and profits at the end of year

Question 5

Built in gains tax

Answer 5

Tax on S corporation only if a C corporation elects S corporation and fair value of the corporate assets exceed the adjusted basis of corporate assets on the election date.

Question 6

Separately stated items: flow through on K-1 to each shareholder

Answer 6

S corporation items flow through to the shareholder:

ordinary income
rental income/loss
portfolio income (dividend, interest, royalties, and all capital gains/losses)
tax exempt interest
percentage depletion
foreign income tax
Section 1231 gain and losses
charitable contributions
expense deduction for recovery property (Section 179)
unrecaptured section 1250 
gain or loss from sale of collectibles
operatint losses