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C12-Chp-12-1B-SCorp-Passthru-Loss-Basis-Dist

C12-Chp-12-1B-SCorp-Passthru-Loss-Basis-Dist - Chapter 12B...

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Chapter 12B. S Corporations C10-Chp-12B-1-SCorp-Passthru-Loss-Basis-Dist .ppt Edited 2010-0221 Howard Godfrey, Ph.D., CPA Professor of Accounting Copyright 2010. Howard Godfrey.

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The student should be able to: 7. Calculate a shareholder's share of ordinary income or loss & separately stated items. 8. Determine the limits on a shareholder's deduction of S corporation losses. 9. Calculate a shareholder's basis in his or her S corporation's stock and debt. 10. Determine the taxability of distributions to its shareholders. 11. Explain the procedures for filing an S corporation tax return. 12. Determine the estimated tax payments required of an S corporation and its shareholders.
3 Lets get a preview of what we will be computing, and why it is important to keep up with E&P (if there is any), Basis of stock and AAA. See next slide.

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Joe owns 100% of S corp. His basis is \$18,000. Balances: AAA = \$2,000, E&P = \$3,000, debt = \$0. Joe takes a current distribution of \$25,000. How much total income is recognized by Joe? Dist. AAA E&P Basis Income Dist./Balances \$25,000 \$2,000 \$3,000 \$18,000 Distribution Distribution Distribution Cap. Gain Answer if a C corp? E&P=\$3,000, AAA-N/A
Joe owns 100% of S corp. His basis is \$18,000. Balances: AAA = \$2,000, E&P = \$3,000, debt = \$0. Joe takes a current distribution of \$25,000. How much total income is recognized by Joe? Dist. AAA E&P Basis Income Dist./Balances \$25,000 \$2,000 \$3,000 \$18,000 Distribution (\$2,000) (\$2,000) (\$2,000) Distribution (\$3,000) (\$3,000) \$3,000 \$20,000 \$0 \$0 \$16,000 Distribution (\$16,000) (\$16,000) Cap. Gain \$4,000 \$4,000 Answer if a C corp? E&P=\$3,000, AAA-N/A

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7. Calculate a shareholder's allocable share of ordinary income or loss and separately stated items.
7 Bow Corp, an S corp, has 3 equal stockholders. For the year ended December 31, 2010, Bow had taxable income of \$300,000, and municipal interest of \$20,000. Bow made cash distributions totaling \$120,000 during 2010. For 2010, what amount from Bow should be included in each stockholder's gross income? a. \$40,000 b. \$60,000 c. \$100,000 d. \$140,000 CPA May, 1987

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8 Bow Corp, an S corp, has 3 equal stockholders. For the year ended December 31, 2010, Bow had taxable income of \$300,000, and municipal interest of \$20,000. Bow made cash distributions totaling \$120,000 during 2010. For 2010, what amount from Bow should be included in each stockholder's gross income? a. \$40,000 b. \$60,000 c. \$100,000 d. \$140,000 CPA May, 1987
9 Income Allocation Procedures. Shareholders report their allocable share of ordinary income and loss and separately stated items in the tax year in which the S corporation's tax year ends. These allocation rules are known as the "per day/per share" method. Special allocations are not allowed. If stock is transferred during the year, income must be allocated between the owners.

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10 No Accum. E & P. Also no debt. On Jan. 1, Mark's Basis in stock: 9,000 \$ Scorp reports book income of: 4,500 \$ Book income includes: Mun. Bond Interest Income 2,000 \$ Gross Meals & Ent. Expense 1,000 \$ Mark's share of ordinary income reported on his Form 1040. Mark's stock basis at year-end? Mark owns 50% of Scorp.
Mark - Book income to TI Net Income per books 4,500 \$ Tax-free income Non-deductible Expenses Ordinary Income Stock Ownership 50% Mark's share of ordinary income

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Mark - Book income to TI Net Income per books 4,500 \$ Tax-free income (2,000) Non-deductible Expenses 500 Ordinary Income 3,000 \$ Stock Ownership 50% Mark's share of ordinary income 1,500 \$
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