C Corporation
What form do we need to file to have an LLC elect to file as a C-corporation ( check the box form?)?
Form 8832
What is the difference concerning formation between Partnerships and S Corporations ? What is the specific form number for S corporation associated with formation?
Partnerships can be simply formed by a partnership agreement, whereas, an S Corporation is formed with articles of incorporation and Form 2553 S election needs to be filed with the government.
At the beginning of the return, there is a schedule that helps with flux. What is this referred to and how/why do we use it?
It is the 2 year comparison. We compare the flux between both years to justify why amounts significantly increase or decrease. (Also applies to entities)
List 4 common permanent differences
▪Tax-exempt state and local bond interest income
▪Federal Income Tax
▪50% of meals (CARES Act = 100% deduction for 2021 & 2022 for meals provided by restaurants)
▪Entertainment
▪Political contributions
▪Fines and penalties
▪Bribes, kickbacks and illegal payments
▪Dividends-received deduction
▪Officer’s Life Insurance
▪PPP Loan Forgiveness Income
What is the R word that Constance kept repeating this week? :)
REFERENCING
what form do you need to file to make an election to join a consolidated return/group
Form 1122
Why are separately stated items so important in passthrough entities?
They impact basis of the partner/shareholders. They also flow to the partner/shareholder's individual returns for the respective schedules in which may have different tax rates applied. i.e. ordinary income, 1231, capital, etc.
What type of activities are reported on Schedule E, both page 1 and 2? List at least 3
Rental
Royalties
K-1 Partnerships
K-1 S Corporations
K-1 1041 - trusts
Real Estate Mortgage Investment Conduits
What does it mean it is a temporary/timing difference? Please use 2 key terms in your explanation, one begins with "r"
Hint: what happens at the end
Items that are included in book income and recognized for tax purposes but in different taxable years (the difference will “reverse” over time)
▪Meaning the timing difference “zeros” out
What is a Sanity Check?
Also, for entities, what can you use from Engagement that can help you with the sanity check?
A Sanity Check is checking and comparing line by line of the returns with the workpapers/support.
We can use the Master TB or the TB reports to help us compare line by line
Can shareholders of a C corporation be foreign companies?
Yes
Please list at least 5 separately state items on Schedule K
▪ Income or loss from rental real estate
▪ Income/loss from other rental activity
▪ Interest income
▪ Dividends
▪ Royalties
▪ Capital gains and loses
▪ IRC section 1231 gains and losses
▪ Income or loss from certain foreign sources
▪ Investment expenses
▪ Charitable contributions
▪ Section 179 expense deduction
▪ Tax preferences and adjustments for AMT computations
What are the different types/methods of payments that apply on an individual return? List at least 4 means in which tax payments apply on a return.
Overpayment applied from prior returns
Quarterly estimate tax payments
Extension payment
Tax Withheld on W-2
Tax withheld on Form 1099s (all kinds)
Book depreciation is $1524 and tax depreciation is $1342.
Complete the following sentence: Because tax depreciation is _____ than book depreciation, this is an _________ adjustment. This ______ the book income, resulting in a ______ taxable income.
Because tax depreciation is LOWER than book depreciation, this is a(n) UNFAVORABLE adjustment. This INCREASES the book income, resulting in a HIGHER taxable income.
For entities, if my return does not tie for the balance sheet, what are 2 or 3 areas I need to check first?
Check the taxable income/loss is correct on M-1 and M-3 (if applies), then check that M adjustments are correctly input and book income/loss ties.
If this still does not tie, check that your distributions and contributions are in the proper input locations. Take out the Retained earnings / Capital override.
If it still does not tie, check that all balance sheet inputs are reflected.
C Corporation - Capital losses – Can be carried back three years and forward up to five years as short-term capital loss. If carried back, it cannot produce a net ________.
Loss
Related to Shareholder contribution in an S corporation, please explain how it flows related to AAA, Form 7203 stock basis and balance sheet (APIC).
Other than updating estimate payments, overpayment applied and extension payments, what else should you check for that impact the tax payments reflected on a tax return? (also applies to entities)
If there are government/franchise tax notices that adjust payments made/overpayments applied.
Section 1250 is _______Property
One example is _______
Section 1245 is ______ Property
One example is _______
Section 1250 is REAL Property
One example is building, land improvements, buildings, building structure
Section 1245 is PERSONAL Property
One example is business machinery, equipment, office furniture fixtures, appliances furnished to tenants
When we add a workpaper to the binder, we should always add a(n) _____ to use to reference.
Always check for ______ , making sure that no other client name or descriptions are wrong in workpapers and the returns.
When we add a workpaper to the binder, we should always add a(n) INDEX to use to reference.
Always check for SPELLING, making sure that no other client name or descriptions are wrong.
For C Corporations, they are subject to entity level tax. However, at the owner level, they are taxed via either (1) _______ distribution or (2) sale of stock. This is also known as ______ _______.
For C Corporations, they are subject to entity level tax. However, at the owner level, they are taxed via either (1) DIVIDEND distribution or (2) sale of stock. This is also known as DOUBLE TAXATION.
For Partnerships and S Corporations, what is the difference concerning income allocation & ownership?
For partnerships allocation is per P______ A______ via S______ A_______
For S Corporations allocation is by O______ P______ aka P_____ allocation (per share per day)
For partnerships allocation is per PARTNERSHIP AGREEMENT via SPECIAL ALLOCATION
For S Corporations allocation is by OWNERSHIP PERCENTAGE aka PRORATA allocation
Regarding Tax Exempt Interest/ Dividends on Form 1099s, are the differences between federal and states? If so, please describe the differences.
Federal exempt interest is a fully tax exempt amount. However, for states (resident) there is a disallowed/taxable amount from the Federal amount. Example: a particular tax exempt interest amount may be 20% tax exempt aka is nontaxable. Therefore, if that tax exempt amount is $100 for federal and the % for a state is 20%, the amount of state NONTAXABLE = $20 while the remaining $80=TAXABLE
Is it 1250 or 1245 property? Where is this reported?
Date purchased: 1/15/2013; Date sold:2/15/2021
Proceeds $250,000
Cost Building&land $200,000
Acc. Depr $58,000
Adjusted basis ?
Selling Exp 5,000
Gain ?
Proceeds $250,000
Adjusted basis $142,000
Selling Exp $5,000
Gain $103,000
1231 gain, Form 4797 page 2
Put the following in order:
A) Tie out book income with PBC book income after previous step
B) Account Grouping
C) Tie out that Final column income/loss matches the BTR calculation
D) Address/decide any adjusting journal entries and book AJE's
E) Check PBC financials/trial balance if capital or retained earnings does not roll before starting
F) Check that the sum of accounts is zero
G) Dynalink/import/input into tax return
H) Import Trial balance
I) Tie out FTAX column income/loss with BTR calculation
J) Format PBC trial balance
K) Book FTJE's
L) Address M adjustments and update BTR workpaper to calculate taxable income/loss
M) Check spelling of account grouping for dynalink
E) Check PBC financials/trial balance if capital or retained earnings does not roll before starting
J) Format PBC trial balance
H) Import Trial balance
F) Check that the sum of accounts is zero in master TB
B) Account Grouping
A) Tie out book income with PBC book income after previous step
D) Address/decide any adjusting journal entries and book AJE's
C) Tie out that Final column income/loss matches the BTR calculation
L) Address M adjustments and update BTR workpaper to calculate taxable income/loss
K) Book FTJE's
I) Tie out FTAX column income/loss with BTR calculation
M) Check spelling of account grouping for dynalink
G) Dynalink/import/input into tax return