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G2R

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Posts posted by G2R

  1. Just reading up on the 1120S instructions updates. Found this summary which quotes the 1120S instructions.  To Read the Entire Article, Click Here

    Quote

     

    In the draft instructions for the 2021 Form 1120-S, the IRS has now stated their position—and it agrees that such expenses do not reduce the accumulated adjustments account.  Page 45 of the 2021 draft Form 1120-S instructions provides:

    An S corporation should include tax-exempt income from the forgiveness of PPP loans on line 3 and report expenses paid with PPP loans that are forgiven on line 5 in column (d) of the Schedule M-2.[5]

    Thus, returns prepared using the default treatments provided by most tax software will have understated AAA and overstated OAA for S corporations who received PPP loans and have treated the loan as forgiven when filing the 2020 S Corporation income tax return.

    Revising this calculation should not require formally amending the 2020 S Corporation return, since the amount of AAA at the beginning of 2021 is not required to agree with that shown on the 2020 return by any provision of the IRC. Rather, the IRC simply requires that the S corporation use the proper amount of AAA to determine the tax status of any distributions.

    If distributions in 2021 did not exceed AAA this adjustment would be all that is necessary to correct the reporting.

     

    The words in red were written under column (d) instructions for the 1120S so I'm not understanding how this corrects the reporting on M-2 column (a) being understated.  Are we suppose to add the PPP forgiveness to line 3 of column (a)?

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  2. 49 minutes ago, DANRVAN said:

    Would that be an actual distribution of cash, or would it be a redemption of B's stock so A becomes 100% shareholder?

    Redemption of B's stock so A become 100%.

    50 minutes ago, DANRVAN said:

    It is not clear here what the objectives are.  Is the idea to get shareholder B out?

    The two SHs do not want to own the replacement property together.   Since the property is tied up in the S-corp, it seems getting B out offers the lowest tax cost overall.  A becomes 100% owner of the S-corp and can choose the property he wants inside the corp & B, with the SH buyout proceeds, can purchase whatever property he wants individually.    Does that sounds accurate? 

  3. 2 hours ago, Abby Normal said:

    Now, ATX needs to update the jump from the 8582 to take you to that tab and not the one where you can't enter anything. And, they should add a jump from the tab you can't enter anything on Sch E to the tab where you can.

    Agreed!  It shouldn't be such a mystery to find.  I find those little checkboxes and blips of information ATX throws in above the forms is where they stealthily put a lot of incredibly important data entry clues. 

    • Like 2
  4. Thank you @DANRVAN for all your insight on this.  It's good to hear another professionals advice on the matter.  You're 2nd option for the buyout if they don't have cash is what I was trying to explain in my post above (obviously not well).  I've referenced my thoughts in Red below.  If you see something drastically different than you analysis, please let me know.  I want to learn.

    16 hours ago, G2R said:

    Say they sell property for $100. Shareholder A wants to 1031 his portion, the company reinvests $75 into a like-kind property and no gain recognition will occur on that (partial 1031).  But SH B wants their portion for themselves, so if they distribute $25 to themselves that triggers gain recognition to the shareholders based on ownership. (25% of the sale's proceeds aren't reinvested, so SH A would have to recognizes 75% of that 25%'s gain!)   That's unfair to SH A, but that's how it would play out.  (Meaning, he'd pay tax on the 25% not reinvested, though he doesn't get the money distributed to him if SH B takes it.  That's why it's a crap idea for SH A.)

    So, I'm not seeing a way around 50% of of the gain being recognized by the SHs without financing the stock buyout.  (Meaning between the two SH, 50% of the realized gain would be recognized)

    • 25% would be recognized by SH B when he sells his stock in the company. 
    • 25% of the $100 would be recognized when it's not reinvesting in like-kind property & instead used to buy SH B's stock. (Unless he gets a loan from a bank and finances the stock buyout.) (see below)

     

    43 minutes ago, DANRVAN said:

    A third option is to complete the 1031 in whole, then borrow 50,000 against the replacement property at the corporate level.  The $50,00 is then used to redeem the 25% stock owned by B.  In that scenario A has not spent any money personally to become 100% owner in a corp worth $150,000, including a note payable of $50,000.  Also, "A" does not incur a tax bill under that option.

    This is what I meant by the 2nd bullet point above. "25% of the $100 would be recognized when it's not reinvesting in like-kind property & instead used to buy SH B's stock. (Unless he gets a loan from a bank and finances the stock buyout.)  

    Only problem is I asked the SH if he thought the bank would give me the loan with the recently acquired property as collateral, he said he didn't think so.  Seems odd though considering the loan would be for 25% of the property's value.  

    I probably should have noted that BOTH SHs are my clients so the tax ramifications to both are important. 

  5. 1 hour ago, DANRVAN said:

    There are not any specific rules for that.  You just follow code 1031 and apply it to the entity level which is the corporation.  Then you follow the rules for shareholders.  Your client has the advantage of owning 75%, so that puts him in the drivers seat.

     

    Ok, between your article @DANRVAN and the one @cbslee linked, I think this is how it goes. 

    Cbslee's article discussed one shareholder wanting 1031 & the other wanting to cash out.  What I thought they were saying was that it's all or nothing.  If any cash is taken by a SH, then the entire 1031 exchange is taxable.  But actually, reading it a second time, what it's saying is, the portion not reinvested is recognizable proportionate to the SH ownership. (Typical 1031 stuff.)

    Say they sell property for $100. Shareholder A wants to 1031 his portion, the company reinvests $75 into a like-kind property and no gain recognition will occur on that.  But SH B wants their portion for themselves, so if they distribute $25 to themselves, that triggers gain recognition to the shareholders based on ownership. (25% of the sale's proceeds aren't reinvested, so SH A would have to recognizes 75% of that 25%'s gain!)   That's unfair to SH A, but that's how it would play out.  

    So, I'm not seeing a way around 50% of of the gain being recognized by the SHs without financing the stock buyout. 

    • 25% would be recognized by SH B when he sells his stock in the company. 
    • 25% of the $100 would be recognized when it's not reinvesting in like-kind property & instead used to buy SH B's stock. (Unless he gets a loan from a bank and finances the stock buyout.)

    The timing of the SH buyout is irrelevant. 

    Then I found this article: https://legal1031.com/1031-exchange-resources/1031-exchanges-s-corporations/

    In the article, they give a potential solution, but I'm struggling to understand OPTION 3's execution.  

  6. Client is a 75% owner in an S-Corp.  The S-corp owns property that is about to sell for big bucks.  Client wanted to do a 1031 exchange but wants to be 100% owner of the new properties.  I explained that usually the same owners must sell and buy the exchanging properties in a 1031 exchange. 

    If the S-corp buys out the 25% owner shares, then my client becomes 100% owner of the S-corp and can proceed with the 1031 exchange under the S-corp umbrella.   What do you think?

    Is there any advantage or disadvantage to 1031 occurring BEFORE the 25% shareholder is bought out? 

  7. 38 minutes ago, Lion EA said:

    How does a CT S-corp that files a NY return opt in? Online? A form to fill out. (In CT it's mandatory.)

    Just efiled my last return for the day, so need to get to these things I postponed !!

    Deadline to opt in for 2021 is TODAY.  

    This is from an email NY sent out a while back:

    To opt in:

    Log in to your S corporation's or partnership’s Business Online Services account. (If the business doesn’t have an account, we recommend creating one by October 8 to avoid missing the election deadline.)

    Select the ≡ Services menu in the upper left corner of your Account Summary homepage.

    Choose PTET web file from the Corporation tax or Partnership tax expanded menu, then select Pass-through entity tax (PTET) annual election.

    Reminder: Tax professionals cannot make the election on behalf of their clients.

  8. 37 minutes ago, G2R said:

    I'm doing a side by side analysis of my NY clients and how it affects them.  It seems to be a great deal.  Even with the lower QBID deduction, the fact that it lowers AGI, those on the borderline of phaseouts will reap the benefits.

    Let me add, it only seemed really advantageous for the higher earning clients.  Those making under $100k profit in their business, and/or not in the higher tax brackets personally, it mathematically didn't justify the election.  

  9. I'm doing a side by side analysis of my NY clients and how it affects them.  It seems to be a great deal.  Even with the lower QBID deduction, the fact that it lowers AGI, those on the borderline of phaseouts will reap the benefits.  

    I'm still a bit shaky on the NY personal return effects. I read that they get a credit on the NY return, but is that credit AFTER the tax is added back on maybe the IT-225?

  10. ATX won't let me efile a tax return that has income items, but the entire 1040 is blank due to basis and passive loss limitations.

    Do you still paper file this so the IRS has a log of the activity & carryforwards that happened on the other forms (ie, Sch E pg 1 & 2)?  Also, is it a benefit to paper file just so the statute of limitations commences?  

  11. 6 minutes ago, Gail in Virginia said:

    If an S-Corp owns a C-Corp, and the C-corp pays dividends out of retained earnings, then the C-Corp would issue a 1099-Div to the S-Corp, which would in turn issue a K-1 to the S-corp shareholders reflecting those dividends.  I think that is what you were saying.

    Yes Gail, that's exactly what I was saying.  Thanks for confirming it too!

  12. 1 hour ago, Lion EA said:

    I don't know, but doesn't the S-corporation report on its 2020 1120 all the activity reported on the LLC's 2020 K-1 to its parent company?

    Thank you for the reply @Lion EA  & @Gail in Virginia -- Originally I was told the LLC was a C-Corp and I'd never seen an S-corp own a C-corp so I was curious how reporting that information would work. I finally got a copy of the actual K-1, and it's an LLC taxed as a partnership, NOT a C-Corp like they said.  🙄  

    But for future reference, if the S-Corp DID own a portion of a C-Corp, I assume the dividends would simply be reported through the 1120S K-1 right?

  13. My client's company (Sub-S) invested in another company (LLC, taxed as corp) in 2020.  For 2020, a K-1 was issued from the LLC to the Sub-S for the 2020 profits, however dividends were not issued until 2021. 

    Am I correct that the 1120S for 2020 will not show any tax implications, but in 2021, the Sub-S will show dividend income to my client on his 1120S K-1?  

  14. I was just reading about this this weekend after NYS sent out an email last week about it.  It's on my list of to-dos so thanks for bringing it up here.  I can see the obvious tax savings in their efforts to work around SALT, but I'm just worried that NYS will get all too comfortable getting this tax income and eventually make it a permanent thing.  NYC doesn't recognize the S-election so a further state tax is tough to explain to clients that don't grasp over tax strategy very well.  (Sigh)

    @TaxCPANY I tried to click the link above and it's broken.  

  15. Resurrecting this topic to emphasize how much this thread has meant to me as an accountant.  The knowledge here completely changed my understanding of AAA/basis/RE etc.  It couldn't have come at a better time given the losses many of my Sub-S clients experienced in 2020, basis reporting requirements, and throw in PPP loan forgiveness reporting and basis challenges and I'm just so grateful to have labored through learning this stuff.  I now have the attached picture below taped to the wall of my office so it's information continues to be reinforced in my head.  I hope it helps someone else that maybe struggles grasping what I found to be a complicated, difficult concept.   I tried to keep the summary info simple and limited to what my own clients normally encounter so it's not a complete textbook of the concept, but if anything below seems wrong, please let me know. 

    image.thumb.png.1c8fe7393a469c024be4af36760f9e4e.png

     

     

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  16. Hi everyone!  I can't thank you enough for all the help with this.  I was able to get through the 3115 (insert proud smile) and now I'm working on the tax implications of their state taxes. 

    Any NY preparers ever dealt with NY or RI regarding this form?  I read that California requires approval before a change in accounting method but I haven't found any rules regarding NY or RI.  
     

    btw, @Lion EA thank you for recommending that self study course.  It was well worth the price.  

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