S Corps Flashcards
1
Q
1120-S due date
A
3/15 - assign K-1s to shareholders
2
Q
Conditions to make an election to be an S Corp
A
- No more than 100 shareholders (family members with a common ancestor no more than 6 generations above and their spouses may be treated as a single shareholder)
- All shareholders must be individuals (No C-Corps, partnerships, or big trusts)
- All shareholders must be residents or citizens of the US
- The corporation must be domestic
- Only 1 class of stock (no preferred, no class A/B common)
3
Q
Formation - Cash or Property >= 80%
A
- Tax free to both
- Carryover basis
- Carryover holding period
4
Q
Formation - Services OR cash/property < 80%
A
- Taxable at FMV of stock
5
Q
Election of an S Corp - % of shareholders and timing
A
- 100% of shareholders
- Must be made by the 15th day of the 3rd month of the tax year (different depending on calendar year vs fiscal)
- If made after this date, C-Corp until next tax year starts, and then an S-Corp
6
Q
Net Basis in an S Corp
A
Initial Basis
+- income/loss +Muni bond interest +separately stated items
- Distributions Received
7
Q
Order in calculating stock basis to determine whether a distribution is taxable or whether a loss is deductible
A
- income items, including gains
- Distributions (not including dividends from C corps)
- Nondeductible, noncapital expenses (eg - nondeductible meals and entertainment), depletion
- Items of loss and deduction (if amounts are greater than remaining basis, allocate them proportionally until basis is reduced to 0, and remainder is suspended until enough basis exists to absorb it)
8
Q
Separately Stated Items
A
- Capital gains/losses (Limit on deductibility of net capital loss)
- Section 1232 gains and losses (Classification of net gain as capital gain)
- Investment Income (Dividends and interest) (Needed for investment interest limitation)
- Passive income (rents/royalties) (Passive activity loss limitations)
- Charitable contributions (Must itemize to deduct/ % of AGI limitations)
- Section 179 depreciation election (dollar limit on use of election per year)
- Tax credits (limited to tax liability)
- Tax exempt income (affects shareholder basis but not taxable)
- Nondeductible expenses (affects shareholder basis but not deductible)
9
Q
Distributions to Shareholders - AAA, AEP, Basis
A
- AAA - accumulated adjustment account - undistributed NI for S corp (not taxable)
- AEP - accumulated earnings and profits - from when corp was a c-corp (taxable)
- When distributions are made, they first come from AAA< then AEP, then basis (not taxable), anything above basis is capital gain (taxable)
10
Q
Termination of S Corp
A
- 50% - voluntary
- Involuntary - change in situation (more than 100 shareholders, shares sold to nonresident, if passive investment income exceeds 25% of its gross receipts for each of the 3 consecutive years
- If revoked, cannot reelect such status for 5 years
11
Q
Built in gains tax
A
- If a c-corp elects S corp status and FMV of its assets exceeds their basis.
- Difference is a net unrealized built in gain
- if assets sold within 5 years, a special built in gains tax at 21% applies
- doesn’t apply if fmv is less than basis
12
Q
Qualified Business Income Deduction
A
- 20% for s corps, partnerships, sole props, trust, estates
- MFJ: $0-$326,600 - full deduction (half the threshold for all other filing statuses)
- MFJ: $326,601 - $426,600 - Wage/property limitation partially applies, if nonqualified business another reduction applies
- MFJ: Over $426,600 - full wage/property limitation applies, must be qualified business
- —Service (SSTB) - non qualified, no pass through decuction
- —Nonservice (qualified) - full wage/prop limit
- ——lesser of – 20% QBI OR greater of 50% w2 wages of business or 25% W2 wages + 2.5% of qualified business property
