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13 Cards in this Set
- Front
- Back
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Section 3.01 S Corp |
S Corp is not tax-paying entity instead, S Corp file information return (1120-S), income generated from S Crop flow through to shareholder (K-1) and they need to report income received from S Corp in their personal tax return
1120-S due 3th month of 15th day w/ 6 M ext |
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S Corp requirement |
1. No more than 100 shareholder (6대손까지, 와이프 1명 is shareholder) 2. Shareholder must be individual, estate, trust (No Corp, P/S or big trust) (Grantor, testamentary trust is ok) (Husband, wife treated as one) 3. Shareholder must be resident or citizen of US 4. Corp must be Domestic Corp 5. Only one class of stock (No PS) (Each Share must be allocated equal AMT of income) |
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Formation (Formal) |
* Election to become S Corp must be agreed unanimously by shareholder * Election must be made by 3th M of 15th D, effective retroactively |
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Similar rule as C Corp (Cash,property/Service) |
Cash and property : If get 80% or more stock, tax free Service : Taxable at FMV of stock (As compensation) |
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At-risk rule |
Stock basis can't go below zero. If stock basis is less than (Item of loss and deduction), shareholder is only AMT AT-RISK which is normally stock basis + debt basis
Because of At-risk rule, any loss AMT not allowed can carry to next year |
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Seperately stated Item |
* Capital Gain/Loss * Section 1231 Gain/Loss * Section 179 depreciation deduction * Rent & Royalty income (Passive income) * Charitable contribution * Interest income/expense on investment |
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What separately stated? |
Those items are subject to certain limitation so instead of separately stated, if it is all added up to net income and it gets distributed to individual shareholder through K-1, they will lost to track the limitation of each item |
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Ordinary Business income |
Income before separaetly stated item |
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S Corp Status termination |
Voluntarily: Majority shareholder agree 50% Involuntary: If violate any of requirement
If passive income exceed 25% of gross receipt for each 3 consecutive year, terminate
Once terminated, can't be reelect for 5 years |
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After termination |
Once S election terminate and become C Corp, income allocation required between two.
Allocation based on 365 day |
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Advantage and Disadvantage of S Corp |
* Shareholder will be taxed on all income of S Corp whether distributed or not * Any capital loss pass through to shareholder instead of being offset against corporate capital gain * Any net capital loss or NOL carryforward from S Corp's time as C Corp is not deductible immediately by shareholder |
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Distribution To shareholder 순서 |
1. Distribution up to AAA (Non taxable) 2. Distribution up to AEP (Dividend income, taxed at ordinary rate) 3. Remaining basis of stock (Tax Free) 4. Excess of basis (Capital Gain) |
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AAA |
Accumulated Adjustment Account Represent cumulative of all undistributed income of S corp Adjustment for federal income tax that is attributable to C Corp year is made to OAA |
