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How is determined the items affecting the shareholders basis…

How is determined the...

How is determined the items affecting the shareholders basis in a 1020s

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

I meant 1120s

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Answered in 20 minutes by:
3/14/2018
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,694
Experience: Taxes, Immigration, Labor Relations
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The shareholder's basis in S-corporation is adjusted every year by certain items reported on K1.

That calculations should be done every year using a special worksheet from instructions.

https://www.irs.gov/pub/irs-pdf/i1120ssk.pdf

see page 4 for Shareholder Stock Basis

and page 6 for Shareholder Debt Basis

You will see a list of items affecting the shareholder's basis in these worksheets.

Questions?

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Customer reply replied 1 month ago
I know that but whats a non deductible expense?
Customer reply replied 1 month ago
because when i go to the software just ask me for to put the numbers

Expenses paid by S-corportaion which are not allowed for deduction on form 1120S.

These are included into worksheet for Shareholder Stock Basis line 13 - and your software will prepare this worksheet for you.

If you do not have any nondeductible expenses - put zero.

Here are IRS regulations

https://www.law.cornell.edu/cfr/text/26/1.1367-1

§ 1.1367-1 Adjustments to basis of shareholder's stock in an S corporation.

some examples for nondeductible expenses are

fines and penalties not deductible under section 162(f); expenses and interest relating to tax-exempt income under section 265;

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Customer reply replied 1 month ago
is not real clear to me. Are you familiar with drake software?

Not familiar.

I am using a different software.

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Customer reply replied 1 month ago
another questions; on 1120s line 7 "Compensation of Officers". Do I enter here the amount of the 1099 form the owner receive from the company and other 1099?

According to instructions --

Enter on line 7 the total compensation of all officers paid or incurred in the trade or business activities of the corporation. The corporation determines who is an officer under the laws of the state where it is incorporated.

Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.

.

Thus - we may not use form 1099misc to report compensation to officers.

Only wages reported on W2 forms are reported here.

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Customer reply replied 1 month ago
where do i report the 1099?

line 19 Other deductions (attach statement)

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Customer reply replied 1 month ago
can a corporation S issue 1099 form to his owner?Whats considered compensation of all officers paid or incurred in the trade or business activities of the corporation?
Customer reply replied 1 month ago
or can the income for the owner of the s corporation be enter on form 1125-E officer information on "officer's deductible compensation"?

Yes - S-corportaion may issue 1099misc - when payments are for services provided for that S-corporation.

That is OK

That may include services provided by shareholders or not shareholders - no difference.

on form 1125-E officer information - yes you may list all officers - but may not list payments reported on 1099misc as compensation - that must be wages reported on W2.

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Customer reply replied 1 month ago
Whats considered compensation of all officers paid or incurred in the trade or business activities of the corporation?

according to instructions

Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.

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Customer reply replied 1 month ago
ok, so in others how do indicate the 1099 misc for the owner and the 1099 misc for the employed

As least that may not be considered as compensation for that purposes.
The issue will be if there will be amounts reported on K1's - there will be a risk the IRS could come back and re-characterize these as wages.

If there will be for instance rental income only or relatively small amounts - that is not an issue.

Large income reported in K1 box 1 and small or NO wages - that is a trigger for the audit.

If most income is passed on 1099misc - and very little or none in box 1 - that is acceptable.

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Customer reply replied 1 month ago
i should not report the 1099 forms? one is for 17400 and another for 10400

In general - that is correct.

These payments should be reported as wages on W2 forms - and if you do that now - there will be later filing penalties.

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Customer reply replied 1 month ago
but the problem is that the company already issued 1099 forms to the owners and to one of the employers. he brought his last year return and i do see that the tax prepares did not put the 1099 forms as expenses on the 1120s. however I do see that they filed their return with the 1099 issued by the company to them. Is that legal?

That is not correct reporting - and the IRS might come back asking for these discrepancies.

If these 1099misc forms were sent to the IRS - we may expect additional assessments on personal level as well.

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Customer reply replied 1 month ago
ok, I have a situation. I have the S corporation with a loss. Can the K1 be issue with the loss to the owner? and if yes, can the owner deduct the loss from the k1 in his personal income tax which he is filing with the 1099 form he received from his S corporation?

Can the K1 be issue with the loss to the owner?

Yes - that is correct.

and if yes, can the owner deduct the loss from the k1 in his personal income tax which he is filing with the 1099 form he received from his S corporation?

Yes that is possible for income tax purposes and

- if loss is reported as self-employment loss - for self-employment tax purposes as well.

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