Included Gross Income Items Excluded Gross Income Items (non taxable) Included/Excluded Gross Income Items

Money Lodging Portion of life ins premiums Exclude first $50,000

Property FMV Interest from state/muni bonds Itemized PY = include tax benefit
State & local refund
Bargain purchases FMV - price Bonds of US possession SD prior = exclude
Guaranteed partner payments also SEP tax US series EE bonds Education, phase-out 2018 & earlier = include
Alimony payments
Interest from fed/corp bonds Schedule B Dividend, no E&P but basis Return of capital 2019 & after = exclude
Interest from for late refund Dividend, no E&P or basis Cap gain distribution
Annuities
Gift from opening bank account Child support Payment applies first Calculate portion of taxable / nontaxable
Dividend out of E&P Qualified / Unqualified Qualified roth IRA distribution Principal and Earnings
Unemployment Compensation Taxpayer must include in gross income the full amount received
Business income or loss Schedule C Non Qualified roth IRA distribution Principal only
Farm income Schedule F Nondeductible traditional IRA dis Principal only SS Income see image on right
Nondeductible Traditional IRA Life insurance proceeds Excluded for beneficiary Loss on investment stock sale first 3,000 deductible
Earnings only
Distribution Gifts / inheritance Person receiving gift Employer-paid insurance premiums exclude up to $50,000
as long as " on the premises"
Deductible Traditional IRA Earnings and principal Medicare benefits Meals and lodging its not income
Distribution
Workers' comp Injury or sickness Employer education payment Exclude up to $5,250/yr
Personal injury or illness award Dependent care assistance Up to $5,000 for under 13, spouse, or disabled dependent
Non Qualified Roth IRA Distribution Earnings only
Accident insurance premiums Transportation Up to $300/month
exclude up to $15,950
Rental Income Schedule E Employee Adoption Assistance - Phased out @ $239k-$279k of Magi

FMV taxable, exclude if given away and Foreign-earned income exclusion Qualified tuition reduction Undergrad-full deduction
recipient was Up to $120,000 Grad student- deduct if TA or research and it in addition to
Prizes/Awards chosen without any action on their part Bona Fide Resident/Physical compensation
Winnings taxable FMV Presence Test
Gambling
Losses deducted to extent of winnings Cash from property settlement
Damages For lost profit - include Scholarships Tuition, books, NOT room and board
Punitive Damages Fully taxable FSA Up to $3,050 - not taxable

COD Income Generally included

Income if employee can elect certain

Employer Contributions to roth 401k I contributions
Life insurance preimus above $50k
Alimony received divorce b4 12/31/18
 Filing Status Adjustments (above-the-line, for AGI) Mnemonics QBI Deduction
Item Amount Notes Federal taxes 20% x Qualified Business Income Limited to 20% of taxable income
2 years following Nondeductible
death Educator Expenses $300 per educator K-12 Taxes FIB Inheritance for state $182,100- 232,100 for single
Qualifying Widow(er) Principal residence IRA Contribution (lesser of) Under 50 Over 50 Business & Rental Business Loss Limitations $364,200- 464,200 MFJ
Qualifying Child CARES Close relative
for whole year child Age limit (19/24)
Tax Basis Limit Deducted
Unmarried Residency & Filing req to extend of
(Flow-through, owner's
$6,500 $7,500 Eliminate GI test tax basis Above: Full W-2 wage/property limit applies;
Home mortgage Excess is carried forward
Earned Income Earned Income Support - child doesn't pay 1/2 Investment K-1) if SSTB and above NO deduction allowed
Interest indef
Expense HIPPE Personal consumer (ND)
Maintain half-year Married Prepaid
$13,000 $15,000 Education loan (adj)
for dependent child, Shared Earned Income Shared Earned Income
Head of Household parent (not live, half
At-Risk Limit Deducted
support), relative to extent of
Student Loan Interest Limited to $2,500/year Robinhood
(Flow-through, owner's
(must live with) risk
Excess is carried forward
K-1)
Up to $3,850 / $7,750 families Inc $1,000 55+ Qualifying Relative SUPORT indef
distribution not used are included in taxable income and get a high deductible plan1500-
HSA 20% tax single, 3000 family Support test (taxpayer pays 1/2)
Non-Taxable HIDE IT Homeowner exclusion (500,000 MJF)
Under $4,700 tax inc Involuntary exchange (no gain recog)
Moving Expenses ONLY military Precludes joint return Divorce property settlement Passive - deduct up to
EOY test Only citizens (USMC) Exchange of like-kind PAL Limit income
Married Filing Jointly Spouse dies during Relative test or Installment sale (Rental Real Active - $25,000/yr with
year 1/2 SE Taxes 50% Taxpayer lives whole year Treasury & capital stock Estate) 50% reduce AGI over
100,000
SE Health Insurance 100%
Excess
Both must file SE Retirement lesser of: Business
Married Filing Seperately MFJ - $578,000
separately SEP IRA 20% (SE NI - 1/2 SE tax ded) or $66,000 (73.5 if 55) 10% Penalty Homebuyer ($10,000) Charitable contributions Loss Limit
Insurance (SEP/UnEmp 12w) Itemized Others - $289,000
Simple IRA 100% (SE NI - 1/2 SE tax ded) or $15,500 (19k if 55) Exception (Before HIMDEAD Deductions COMMITT Other (Max $
Single EOY test age 59 1/2) Medical exp in excess AGI fl Miscellaneous Amount)
Solo 401k 20% (SE NI - 1/2 SE tax ded) or $66,000 Lesser of Disability ($22,000 max) Medical expenses
Interest Withdrawal Penalty All (from saving acc) Don't net Education (not R&B) Interest Personal Loss Limitation
Adoption or birth ($5,000) Taxes
Individual Tax Formula Death Theft/Casualty $3000 personal limit on ST/LT Cap Loss
Alimony Paid 2018 & beofore = adj to payor
2019 & after = nothing ./ bn
Qualified Charity $300 if not itemized Tax Credits Additional SD for 65+ and/or Blindness
Title Refundable Description, Limit, Amount, Etc. Unmarried Married
Gross Income
(Adjustments) Deductions (below-the-line, from AGI) Under 13, both parents work, pay to have child taken care of ($8k exp limit/$16k); $3,000 One dependant, $6,000 two or more One Qualified Taxpayer
Dependent Care NR Max 35% (AGI < 15,000) - phase out over 35-20% (1% per $2,000) Min 20% (AGI > 43,000)
AGI
(Standard/Itemized Deductions) Item Amount Notes 65 or Blind $1,850 $1,500
Taxable Inc before QBI deduction 65yrs + or under 65 & retired from permanent disability 65 & Blind $3,700 $3,000
(QBI Deduction)
Taxable Income Two Qualified Taxpayers
Elderly & Perm 5,000 - (All SS) - (1/2 AGI over 7,500 - single) = 7,500 - (All SS) - (1/2 AGI over 10,000- mfj (5k if mfs)) =
Qualified medical expenses Disabled NR BASE
Federal Income Tax Medical Expenses <Insurance reimbursement> Balance * 15% = Balance * 15% =
Credit Credit Single 5,000 65 or Blind $3,000
(Tax Credits) Qualified Med Expenses "paid" MFS -5000
Other Taxes <7.5% of AGI> Prescription drugs,doctors, 65 & Blind $6,000
MFJ (BOTH)-7500
(Payments) Deductible Medical Expenses medical premiums, etc. Up to 20% of $10,000 expenses, unlimited number of years MFJ one qualifies -3750
Tax Due or Refund Lifetime Learning NR Only one student per year, AGI Limit $80K-$90K (single) // Robinhood rules
State, Local, and Foreign Taxes Employee Stock Options

60% NR
Real Estate Taxes All - must be legally obligated to pay (Not both SALT American First four years of college - 100% of first $2,000 qualified expenses, 25% of next $2,000 Type When Taxable
40%
Opportunity Max $2,500 per student per year, AGI Limit $80K-$90K (single) &160k-180k MFJ // Robinhood rules
Refundable
Personal Property Taxes All - items like vehicles / boats and Sales Tax) Nonqualified When granted if RAV, if not then exercise
Available for low to moderate income taxpayers for IRA contributions
Income Taxes Estimated, withheld, assessments Limited to Retirement Savings ISO Not when granted/exercised, Sale has G/L
Contribution NR 10% - 50% of AGI with max contribution = $2,000 and max credit = $1,000
Sales Tax (instead of inc) Either income taxes or sales $10,000 - *you get a deduction & a credit ESPP Not when granted/exercised, Sale has G/L
Interest HIPPE Lesser of foreign taxes paid or (tax inc from foreign op/total tax inc) * US tax
Foreign Tax NR Carryback one year or forward ten years
Home Mortgage Up to $750,000 either org debt or equity loan Individual Penalties
Investment Interest Expense Limited to net taxable investment income Tax Liability Allowable % Allowable Amount
Personal Consumer Interest Not deductible $0 - $25,000 100% X 5% per month less fail-to-pay, if
General Business NR Excess 75% X Failure to File over 60 days lesser of $435 or
Prepaid Interest Deduct when incurred and paid 100% of tax due
Educational Loan Interest N/A - adjustment $2,500 per year Maximum credit permitted = Total // Carryback 1yr forward 20yr
Charitable Contributions gifts & political contributions NOT deductible Qualified adoption expenses up to $15,950- MAGI phaseout Failure to Pay .05% (1/2 of 1%) per month (max
Adoption NR Not for spouses child and no medical expenses
Cash 60% of AGI limit Negligence (not substantial) 20% of understmt
Ordinary Income Property 50% AGI limit - inv, ST assets, personal asset w dep Subst. Understmt (accuracy related
$2,000 for each qualified child, phase out $50 for each $1,000 when AGI exceeds $400,000 for MFJ penalty) substantial = greater of 10% or
Child Tax Refundable Must be under 17 & phase-out 20% of understmt
$5000 - corp: less of $10m or greater of
LT CG Property 30% AGI limit - invest assets, person use assets, etc. $10k or 10% correct tax
Casualty Losses Lower your income the bigger the credit
Earned Income Refundable Would be given a chart if needed to calc Fraud Penalty 75% of understmt and criminal
Requirements At least $100, exceeds 10% AGI, presidentially deck dis
Calculation Fed Inc Tax
Refundable Refund or credit to next year 100%* of PY
Withheld 90% of CY
Smaller loss (lost cost/adj basis, decreased FMV) Safe Harbor < or = $1000
Two or more employers - claim the excess as a credit
<Insurance recovery> Excess SS Paid Refundable One employer - they must refund (they made a mistake) *110% if AGI>$150k
Taxpayer's loss
<$100> work opportunity cre NR 40% of the first $6,000 of first years wages; 40% of the first $3,000 to certain summer youth
Eligible loss
<10% AGI>
Deductible loss
9/15/2022
3/15/2024
18
 Schedule C, Business Income or Loss Schedule F, Farming Income Reporting Partnership Income (Schedule K-1)
Gross Income Cash Basis Item Schedule 1065 K K-1
Cash Amount received Most farmers use Ordinary Business Income/Loss E Yes Yes Yes
Property FMV Inventories of produce, livestock, etc. not considered Business Income Yes
Cancellation of Debt GI includes cash & value of all items received from sales that have been raised by farmer <Business Expenses> Yes
Business Expenses For items bought - profit is sales price - cost <Guaranteed Payments> Yes
Cost of Goods Insurance payments from crop damage = income Guaranteed Payments to Partner Yes Yes Yes
Salaries and Commissions Paid to others Interest paid on loan used for business is deductible Net Rental Real Estate Income/Loss E Yes Yes
State/Local Business Taxes Expense inventory Interest Income B Yes Yes
Office Expenses Accrual Basis Dividend Income B Yes Yes
Actual Auto Expenses Required for certain corporate & partnership farmers & farming tax shelters Capital Gains and Losses D Yes Yes
Business Meals Expenses 50% Inventories must be used and maintained Net Section 1231 Gains/Losses D Yes Yes
Depreciation of Bus Assets Gross profit = EOY inv + proceeds received from sales - BOY inv - Cost of inv purchased Charitable Contributions A Yes Yes
Int Exp on Business Loans Must be incurred and paid Section 179 Expense Deduction Yes Yes
Employee Benefits Schedule E, Rental Income or Loss Investment Interest Expense Yes Yes
Legal/Professional Services Rental of Residence (Home) Partners' Health Insurance Premiums
Bad Debts Written Off Accrual basis only Part of Guaranteed Payments (adjustment) Yes Yes Yes
Fewer than 15 days Excluded from income
Nondeductible Expenses Retirement Plan Contributions for Employees Yes
Salaries to Self Own draw
Expenses must be prorated between personal and rental
Investment expenses 15 days or more Retirement Plan Contributions for Partners
No rental loss allowed
Federal Income Tax Part of Guaranteed Payments (adjustment) Yes Yes Yes
Personal Portion… Auto, meals, travel , interest exp (A), state and local tax (A), health ins (adj) Nonresidence (Rental Property) Tax Credits Yes Yes
Bad Debt Expense Cash basis
Considered passive and will be deductible up to extent of income,
Itemized deduction on schedule A phased out when AGI is excess of $100,000
Charitable Contributions Mom & Pop exception of active participation of $25,000
Entertainment Expenses General
Net Business Income
Income Tax
Gross Rental Income
Self-Employment Tax Up to $160,200 is subject to 15.3% tax (SS/Medicare) Prepaid Rental Income (non refundable deposit)
Calculated on 92.35% of net SE income Rent Cancellation Payment
Improvement-in-lieu of Rent (FMV)
Net Business Loss <Rental Expenses>
Max loss limit = $578,000 MFJ / $289,000 Others Net Rental Income or Loss
Net Operating Loss Carry-forward excess & offset 80% of future income after Dec 31, 2020
NOL 2018-2020 carryback 5 years & no 80% limit

Title Form # Description Notes

Schedule A 1040 Itemized Deductions
Schedule B 1040 Interest & Ordinary Dividends
Schedule C 1040 Profit/Loss from Sole Prop & Itemized Business Deductions
Schedule D 1040 Capital Gains/Losses
Schedule E 1040 Itemized Deductions for Rental Properties, Trusts, Partnerships, Royalties, etc. Passive Income - mostly real estate
Schedule F 1040 Farm income
Schedule K 1065 Partnership Income
Schedule K-1 1065 Individual Partner Income Partnerships & LLC
Schedule K-1 1120S Shareholder's Share of Income S Corp
 Basis & Holding Periods of Assets Calculating Gain or Loss at Disposition Gain & Loss Exclusions HIDE IT & WRAP MACRS Classes - Personal Property
Item Basis Holding Period Adjustments Type G/L Description / Requirements Other Years Items Included
Purchased Cost Of capital improvements From purchase date Depreciation Homeowners exclusion Gain own and use 2 out of last 5 years $500k MFJ / $250K S 3 years special tools and certain racehorses

personal 2 years
Amount Realized Involuntary conversion Gain Only over reinvestment taxed business 3 years 5 years cars, light trucks, computers, copiers
Rollover cost (NBV) + gift tax Lower of FMV
Gifted Original holding period Money received
EXC = lower FMV at gift date or NBV for dep
Cancel debt (COD)
FMV property
Less: selling exp Divorce property settle Gain Basis is NBV nontaxable! 7 years furniture, machinery, equipment
FMV at date of death OR Exchange of like-kind Real property used in business or Real property ONLY 10 years boats and water equipment
<Adj Basis of Asset Purchase = cost Gain
held for investment = land & buildings
Inherited Alt val = earlier Always LT Gift = rollover cost bus/inv real property 15 years qualified improvements to interior of nonres
Sold>
Max 6m after or dis/sale Inherited = step-up FMV Basis when boot FMV of prop received - deferred gain + deferred loss 20 years certain farm buildings and muni sewers
Installment sales Gain Taxed when cash payment is received
Calculating Gain or Loss on Sale of a Gift Homeowners exclusion Treasury & CS Trans Gain Sales, repurchases, reissuance of stock MACRS - Real Property (Straight-Line)
Basis Sale Gain/Loss Calc Gain recognized Involuntary conversion Repurchased 30 days before or after Years Items
Divorce property Wash Sale Loss
Sell higher Use donor basis for gain (unless HIDEIT) Basis of repurchased = purchase price + disallowed loss 27.5 years residential real property (apartment/rental home)
Exchange of like-kind
Donor Basis Installment sale Related Party Transaction Loss Family or more than 50% owned business 39 years nonresidential real property (office / warehouse)
Sell between No gain or loss Treasury capital & stock Personal Loss No deduction allowed
Lower FMV Convention Rules
Sell lower Use lower FMV for loss Wash sale losses Long-Term Trade or Business Use Assets Convention Rules
Loss recognized Related party losses
(unless WRaP) and Half-year Personal prop (machinery and equip) in year you buy and sell
Expense or Capitalize Personal losses Mid-quarter If <40% placed in service last quarter
Item Details Mid-month All residential real property (builiding) for month placed in service
Repairs/Main Expense Characterization of Assets
Capitalize Asset Cap / Non Cap Other Depreciation
Personal automobile Capital Type Rules & Description
Furniture / fixtures in home Capital
Improvements Section 179
Capital In lieu of depreciation up to $1,160,000
Enlarges, expands, or increases quality of property Stocks and securities Reduced $ for $ of prop put in over $2,890,000
Substantially extends useful life of property
Restores property value Capital
Adapts property to new or different use Personal property not in trade Bonus Dep Personal Property with recovery of 20 yrs or less
Real property not in business Capital 100% if placed in 2018-2022; 80% 2023
De Minimis Safe Harbo Audited FS = expense up to $5,000 Interest in partnership Capital
Unaudited FS = expense up to $2,500
If over, capitalize entire cost Goodwill Capital Amortization
Copyrights, etc. purchased Capital Item Rules
Capital Losses Rules Investment assets Capital Intangibles Straight-line for 15 years
Offset Income or Gains Carryback Carryforward Inventory Non Cap Org/Start-up Up to $5,000 and then over amortize SL 180m
NOL Yes (80% after 2020) No Indefinitely Treasury stock Non Cap
Individual CL $3,000 No Indefinitely Copyrights, etc. owned by artist Non Cap
Corporate CL Not in current year 3 years 5 years A/R & N/R from business Non Cap
Dep personal prop used in T&B Non Cap

1250 recapture for buildings only taken to the extent of accelerated accum depr. over straight line
 Book Income vs Taxable Income

Temporary vs Permanent Differences

Income or expense that are rec in one
Temp period for book dif than tax but end w no
Difference difference
Perm Income or expense that are recognized for
Difference book but not tax with permanent difference

Schedules
Schedule Description

Doesn't distinguish between temp & perm

M-1
Less than $10m in assets

If total assets <$10m req M-3

M-3 Breaks out items in detail
Distinguish perm vs temp difference

Simulations to practice, R4-M3

TBS 002296
TBS 077005
TBS 004402
TBS 002316
Corporation Tax Consequences (formation) Corporate Taxable Income & Limitations Corporate Tax Credits Affiliated Group vs Brother-Sister Corp Dividends Defined
Gross Income Includes Dividend Inc Credit Rules From current E&P (by year-end) Taxable dividend
No G/L when issuing stock for property
when: General Limit: (Tax - 25k) * 25% = disallowed Affiliated Group: From accumulated E&P (distribution date) Taxable dividend
Brother-Sister:
formation - issuance of CS NOT: Business Unused credit: back 1 forward 20 Common parent owns 80% of Return of cap to extent of stock basis (no E&P) Nontax, reduces CS basis
Corporations where an
reacquisition - purchase TS <Deductions> Charitable Contributions voting power and value of
R&D individual owns 80% or more -
resale - sale of TS Dividend-Received-Deduction 20% over defined base amount outstanding stock - YES Capital gain distribution (no E&P/no basis) Taxable cap gain
NO consolidated return
Capital Loss Carryback consolidated
Basis of property corporation receives:
greater of NBV or debt assumed by corp Either credit or deduction Matching Cash Dividends to Source
Foreign Tax 1. find qualified foreign IT paid
2. compute credit limit Current E&P Allocated on a pro-rata basis to each distribution
Shareholder Tax Consequences (formation) 3. choose lesser Accumulated E&P Applied in chronological order with earliest first
<Charitable Not gifts
Contributions Not political contributions
Deduction> Max 10% of (GI - deductions) Accumulated Earnings Tax Stock Dividends
No G/L when exchanging property for CS if: 5 year carryforward
80% control AND Accrued are deductible if paid
No receipt of boot (no cash/debt exchange) within 3.5m of year end (Apr 15) Definition Distribution of its own stock to shareholders
Generally not taxable Unless shareholder has choice of receiving cash
Basis in CS: Determination of value FMV on distribution date
Cash (amount contributed) +
Property (adjusted basis) + Requirements: Allocation of basis Divide the old basis by new total shares
Services performed (FMV) First corporation is taxed
<Dividends- Owned 45 days before & after
Consolidated Taxable Income Steps Corporation Paying Dividend: Taxable Amount
Received-Deduction> Dividend Income:
Calculations for Formation 100% if 80%-100% (consolidate) General Rule Not a taxable event
1. Calculate the stand-alone taxable income of each member
65% if 20%-79% (large invest) Property Dividends Exception -- is taxable to corporation paying
Gain realized: 50% if under 20% (small invest)
Amount realized (FMV) - Limited to DRD% of GI-D-CC If Appreciated Property Gain = FMV - NBV
Adjusted Basis (NBV) 2. Remove the effects of transactions between members
Exc. If DRD = NOL not limited to % (intercompany transactions & dividends received)
Corporate Liquidation
Gain recognized, lesser of gain realized or:
Taxable Income or If NOL: Corporation sells assets and distributes cash to shareholders
Boot received Back 5 years, forward indef (18-
Loss 3. G/L & deductions required to be determined at consolidated
+ Excess liabilities over adj basis 20)
Back 0, forward indef (2021+) level are removed Corporation recognizes G/L on sale of assets
Shareholders recognize G/L to extent that cash exceeds adj basis of stock
Start-up & Organizational Cost Calculations Personal Holding Company Tax 4. Each resulting tax income are combined Corporation distributes assets to shareholders
Shareholder stock basis:
Adj basis 5. Adjust for items removed in step 3 Corporation recognizes G/L as if it sold of assets for FMV
- Liabilities assumed Both: Expenses over 50,000 reduce the $5,000 $ for $
+ Recognized gain Each: $5,000 + Excess amortized over 180 months Shareholders recognize G/L to extent that FMV exceeds adj basis of stock
Definition: more than 50% owned by 5 people or
less AND 60% of AGI from: Loss Rules
Corporation basis greater of:
Transferor's basis + Estimated Corporate Tax Payments Net rent Liquidation vs Reorganization
Interest (taxable) Offset Other Carryback Carryforward
Gain recognized OR Income
Liabilities in excess of basis Small Corporations either: Royalties Business Corporate
100% of current year tax Dividends from unrelated domestic corp NOL Pre-2018 N/A 2 20 Activity Consequence Shareholder Consequence
100% of prior year tax Additional tax assessed: NOL 2018-20 N/A 5 indef Liquidation Ceases Taxable Taxable
Large corporations (1,000,000+ income): 20% on net income not distributed NOL 2021+ N/A 0 indef Reorganization Continues Nontaxable Nontaxable
100% of current year tax NOLs carried forward: 100% TI 2018-20; 80% of TI for 2021 +
Corp Cap Loss $0 3 5 Worthless Stock & Small Business Stock
Ind Cap Loss $3,000 max 0 indef Section 1244 stock / MFJ 100,000 / Others 50,000
Worthless Stock
Ordinary loss (fully ded) instead of capital loss

Small Business Stock If held 5+ years then exclude 100% of gain on sale
Max is greater of: 10x basis in stock or $10 million
 Shareholder Tax Consequences (formation) Effect of S Corporation Election on Corporation Distributions - S Corp with No C Corp E&P (Always S Corp) Consequences to S Corp on Liquidation
Distribution Tax Result Treatment Corporation will recognize G/L on dis as if
Pass-Through property was sold at FMV
No G/L when exchanging property for CS if: To extent of Not subject to Return of
80% control AND Income or Loss Allocate on a per-share, per-day basis 1st
stock basis tax, reduce basis capital
No receipt of boot (no cash/debt exchange) to Shareholder Losses limited to basis
Review what is on K-1 FMV of assets distributed
S-corp inc might qualify for QBI deduction <Basis in assets>
In excess of Taxed as LT CG Capital gain Taxable Gain/Loss
2nd
stock basis (if held > 1yr) distribution
Eligibility to be an S Corp Deductible: if 2% or less ownership
Fringe Benefits
Non Deduct: over 2%, must include on K-1
Qualified Corporation Domestic, no consolidated return
Consequences to SH on Liquidation
Distributions - S Corp with C Corp E&P
Treated as payments in exchange for stock
Adj basis is subtracted from amount
realized
Yes: Distribution Tax Result Treatment
Individuals, estates, or certain trusts
Qualified retirement & 501c3 S corp profits
Eligible Shareholders To extent of S Not subject to
No: 1st (already
Corp AAA tax, reduce basis
Nonres alien individual Shareholder taxed)
Corporation or partnership Basis in S Corp Initial basis (cash, adj basis of prop, FMV
Stock services) To extent of C Taxed dividend, Prior C corp
2nd Cash received
+ Income items (OBI, sep stated inc/gains, Corp E&P no reduced basis taxable div dis
tax-exempt income) FMV of property received
+ Additional contributions <Liabilities assumed>
Shareholder Limit No more than 100 - Distributions to shareholders To extent of Not subject to Return of Amount realized
3rd <Basis in stock>
- Loss/deduction items (OBL, sep stated stock basis tax, reduce basis capital
One Class of Stock Common stock, different voting OK Taxable gain (loss)
loss/ded, non ded expenses, expenses)
**Wages/salary do not affect basis
In excess of Taxed as LT CG Capital gain
4th
stock basis (if held > 1yr) distribution
Effect of S Corporation Election on Corporation
Tax year GR: Dec 31st requirement Limitations on
Each shareholder reports income & pays Pass-Through Deduct up to basis + direct loans Terminating Events of S Corporations
No tax on corporation of Losses To deduct must clear hurdles in order:
tax (K-1) Tax basis limitation Corporation or partner owner
At-risk limitation Foreign owner
LIFO recapture tax FIFO tax - LIFO tax = pay the difference More than 100 owners
PAL limitation
Excess business loss limitation Shareholders more than 50% consent to voluntary revocation
Built-in-gains tax when: More than 25% GI receipts from PII for 3 years
C corp --> S Corp AND Prior S corp income which can be
FMV > Basis on date of election Accumulated withdrawn tax-free (first)
Built-in-Gains tax
Calc: 21% of less rec BiG or tax inc if C Adjustments Increases: OBI & sep stated inc/gains
Exempt: never C corp, sale in 5yr, Account Decreases: OBL, sep stated loss/ded,
appre. after S elect, asset acq after nonded expenses, distributions Effective Date of Termination
Voluntary:
If filed by March 15th, effective Jan 1 of CURRENT YEAR
Passive Investment 21% on lesser of NI or excess PII if: If filed after Mar 15, effective Jan 1 of FOLLOWING YEAR
Income Tax have acc E&P from prior years as C Involuntary:
PII exceeds 25% total gross receipts Immediate termination, can result in 2 short tax years (partial C
and partial S taxation)

Reelecting S Corp Status

Wait 5 years and ask IRS permission
 Partnership Formation Increases to Partner Outside Basis Partner's Tax Basis in Partnership Interest Loss Limitations Complete Withdrawal (Liquidating Distribution) Section 754 Election and 743(b) Basis Adj
754 election can be made when there is a
Generally no gain or loss recognized Additional contributions Cash Nontaxable Liquidation: zero out to get out difference between inside and outside
Deduct up to basis
Income and gain items Beginning Capital FMV service To deduct must clear in order: basis
Increases in partnership debt Account NBV assets (less & assumed Tax basis limitation
Exception: capital interest acquired for services provided, by others) 743b adjustment = difference between
taxable at FMV as OI & property subject to excess liability Decreases to Partner Outside Basis At-risk limitation Beginning capital account outside basis and inside basis so they are
when assumed by other partners - gain to partner PAL limitation Partner share of income <loss> up to withdrawal equal to one another
Distributions OBI Excess business loss limitation Partner's capital account
Partnership Interest Loss and deduction items Add % of All Income Sep stated income/gains Partner's share of partnership liabilities
Decreases in partnership debt Tax-exempt income Loss Carryforward Summary Adj basis in partnership int at date of withdrawal
Capital interest - right to share in net assets of partnership
when liquidate <Cash distribution>
Special Allocation OBL Suspended loss due to insufficient tax basis Remaining basis to be allocated to assets distributed
Subtract % of All Losses Sep stated
Profit interest - right to share in future P&L…if acquired by and Deductions losses/deductions Gain: cash > basis
Nondeductible expenses Carryforward to offset future inc when basis reinstated Gain or loss recognition
services - no tax Property with built-in-gain or loss: Suspended disappear when dispose of partner interest Loss: basis > only cash
If property with FMV higher or lower than adjusted
basis then at sale allocated G/L to contributing Cash Suspended loss due to insufficient at-risk basis Partnership consequences: NO gain or loss
Subtract Distributions
Partner's Basis in Partnership Interest partner Property (adj basis) Carryforward to offset future inc when at-risk basis reinstated
Outside Basis Ending Capital Account Use to reduce gain from sale when dispose partner interest Sale of Partnership Interest
Initial Basis: Partner's Basis in Partnership Interest Add: % of Partnership Liabilities Suspended passive activity loss GR: G/L on transfer is capital G/L
Inside Basis Ending Tax Basis in Partnership Interest Carryfoward to offset future passive activity income
Greater of NBV or debt assumed Use to offset other sources of income when dispose passive act.
Cash contributed Guaranteed Payments Excess business loss
Property contributed (adj basis)
Services provided (FMV if cap int) Outside Basis Definition Receiving Partner - K-1 income (taxable) - no basis effect Carryfoward as an NOL to offset future income Beginning capital account
<Liabilities transferred to partnership & assumed by others> Subject to 80% of future taxable income limitation Share of income <loss> up to sale
Partner's share in partnership liabilities Partnership expense (deduction) Max: 578,000 MFJ; 289,000 all others Capital account at sale date
Share of partnership liabilities
Basis a partner has in the ownership interest Tax Adjusted basis in partnership interest
basis similar to ownership interests Amount realized (cash, FMV prop, liab relief)
Inside Basis Definition Tax Elections Nonliquidating Distribution Capital Gain/Loss
Recourse debts: go after partner's personal assets
only allocated to general partners Made by partnership not partner Reduce partnership basis by cash or NBV of property (stop at 0)
Basis that the partnership itself has in the assets Exception: gain that is a hot asset (inv/unrealized
Can come from contributions made by partners Start-up & Organizational Cost Calculations rec) is ordinary income
Nonrecourse debts: secured by property If property NBV > basis: adjust property basis to partner basis
allocated among all partners based on ratio Both: Expenses over 50,000 reduce the $5,000 $ for If cash > basis: excess taxed as capital gain
$ Allocation of partnership income or loss: pro-rata
Transactions Between Partner & Partnership Each: $5,000 + Excess amortized over 180 months based on number of days
Property subject to excess liability = boot QBI Deduction
When over basis amount = taxable gain Related party (over 50% interest) loss disallowed Ways to Liquidate Partnership Interest
Related party (over 50% interest) gain is OI Below the line deduction of 20% QBI Retirement or Death of Partner
Holding period of interest: use old holding period for PP&E
unless inventory = date contributed Complete withdrawal (liquidating distribution)
Sale of partnership interest
Retirement or death
Payments for interest in partnership assets are CG/L
If measured by partnership inc then OI to retired
 Simple Trust vs Complex Trust Unrelated Business Income (taxable)
Only distributes current income Tax exempt org subject to reg corp inc tax for UBI from income
Distributes all its income that:
Simple Trust
Cannot take charity deduction 1. derived from activity that is a trade/business
$300 exemption in getting tax inc 2. regularly carried on
3. not substantially related to org tax-exempt purpose
May accumulate current income
May distribute principal
Complex Trust
May provide for charitable contri. Limited Liability Company (LLC)
$100 exemption in getting tax inc
Members not personally liable
All members can have limited liability
Gift Rule Treated as either partnership, corporation (elect), or sole
$17,000/yr/donee proprietorship
Gift Rule Unlimited Exclusions
directly to educational institution
directly to health care provider for medical care
charitable gifts
marital deduction
donations to political parties

Present vs Future Interest Gifts

Outright gifts of cash or property

Trust inc where frequent dis mandatory
Present Life estates
Interest Estates for a term certain
Bonds or Notes
Unrestricted life insurance policy transfers

Future Reversions (gifting then getting back)

Interest Remainders (distributed in future)
Trust incomes (with some dis in future)

Complete vs Incomplete Gifts

Complete Donee not yet born but can be identified later

Gift Despite poss of property reversion in future
Incomplete Conditional gifts
Gift Revocable gifts
 Automatic termination of Actual Authority
Death of principal or agent
incapacity of principal
discharge in backruptcy of principal
failure to acquire liscense
destruction of subject matter
subsequent illigality

Termination of aparent authority

Actual notice must be given to terminate
apparent authority with to old customers

Constructive notice must be given to terminate

apparent authoruty as to potential customers who may
have known the acengy but not done business with