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Anyone quit the job after one week? Is is ok?
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Is boarding horses a Sch C or Sch F activity?
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And would like to run it by someone a little smarter than me, even if it costs me a consulting fee.
Phone a friend? Someone else in your financial advisor group? Does the individual you're helping have a CPA?
What's the question?
All distribution have to be prorata. If they're not do a true up aje to distr payable
Going to use phone a friend if I can’t figure it out by Friday. Really trying to avoid calling a Tax practitioner this close to the deadline lol.
@Moss Adams - it’s their individual return. Basically they bought shares ($115,000) in their employers company (S-Corp) by signing a note for the same amount. They received distributions of about $50k. Calculated basis and they have plenty after increases/decreases for the year. Tax software says its included in taxable income but from the research I’ve done it looks like distributions aren’t taxable if the shareholder has sufficient basis. So now Just looking to clarify if the distributions should or should not be taxable and how the interest they paid impacts them as well.
If they have basis it shouldn't be taxable to them.
That was my thought too based on what I read but just wanted a second opinion. So either something isn’t entered into the software correctly or I’m missing something. Would the fact that he took a loan to purchase the shares affect the basis? Everything I’ve found so far related to the shareholder loaning the S-Corp money but not vice versa.
Using a loan to purchase the shares should not keep you from increasing basis for the purchase of shares. Distributions from an s Corp don't typically flow through to the tax return anywhere. Not sure what kind of software you're using.
I guess my question would be.. who holds the note? Who is the interest being paid to?
Your state CPA society has a forum for tax questions. But yes, he has sufficient basis. Usually the software doesn’t calculate gains on distributions in excess of basis and you have to manually calculate the gain in the software. Did you enter their beginning basis (I assume $0) and look at the K-1 basis worksheet on their 1040 return? That may help you troubleshoot.
@PwC using drake software. I’m sure not many folks here use it. Think it’s more for the solo/small practices. The s-corp holds the note is my understanding and the shareholder pays back interest quarterly.
@Tax Senior - thanks! I did find that resource today. Going to try to use it tomorrow.
I did enter their beginning basis as 0 and then Included his purchases of the shares of $115k plus the income for the year ~ $50k minus the items that reduce the basis listed on the estimated K-1. Because the the K-1 is only an estimate and an extension will need to be file the they basically just received an excel excerpt of the details of the K-1.
What is the exact gain being calc’d? I have an idea 💡Also, did the S Corp issue a 1099-INT to shareholder? I see at the bottom there is some interest income to the shareholder that needs to be reported on Schedule B
They're being taxed off of line 1 ord income. Not the actual gain they both happen to be similar amounts. Look where the income is flowing on the 1040. Is it from sch c or sch d?
They're gonna be taxed no matter what on the line 1 from the k-1
Also s Corp wouldn't issue a 1009-int to the sh. That's the point of the k-1. #duh
@Tax senior - the amount coming to the 1040 for Sch E is 51,389 (same amount as ordinary income) and then all of the interest, dividends, and ST/LT CG are populating on their respective lines. So that interest is actually interest paid by the shareholder to the S-Corp for the loan he took out to purchase the shares. It’s not interest they received. That was a side question I had. Where they heck does that get reported? Everything I could find was about loans FROM the shareholder, not TO the shareholder 😔🤦🏽♂️
@Moss Adams - That appears to be the case and I guess that becomes the question to me. This is probably like a “is the sky blue?” type question to you all 😂😬😔 Regardless of basis and distributions, if the K-1 reports ordinary income, it’s taxable regardless of having sufficient basis and regardless of the distribution amounts reported?
The ordinary income isn’t flowing from schedule C or D. The ordinary income is Coming through on line 17 of 1040 for S Corps and the capital gains from the estimated K-1 are coming through from Sch D.
Can you show a screenshot of how Drake is computing gain? Also, the amount shown as loan repayment should not be input, otherwise it will likely reduce basis. Unless they did in fact loan the S-Corp funds.