Posts Tagged ‘Erin Murphy’

Tax Roundup, 3/29/16: How you figure S corporation stock basis. And: Cronyism!

Tuesday, March 29th, 2016 by Joe Kristan

capitol burning 10904Cronyism 95, Taxpayers 1. The bill to provide a refundable tax credit — that is, a subsidy run through tax returns — for “bio-renewable chemical production” flew through the Iowa House of Representatives yesterday. Only Bruce Hunter (D-Des Moines) voted against SF 2300 in the house. He joins three Senate Democrats (Bolkcom, Quirmbach and Dearden) as the only opposition in the General Assembly to a classic bit of central planning through the tax law.

Iowa already has 24 economic development credits, budgeted to cost taxpayers $277 million in the coming fiscal year. Apparently we needed one more.

Rep. Hunter and Sen. Quirmbach cast two of the three votes against the disastrous Film Tax Credit Program. With a $10 million cap, at least this mistake will cost less than the film fiasco.

Other coverage:

O. Kay Henderson, Biochemical tax credit gains legislative approval, headed to governor

Erin Murphy, Renewable chemical tax credit in Iowa advances closer to final approval

 

S-SidewalkBasis: the first hurdle for determining your deductible S corporation lossYesterday we outlined the unholy trinity of rules restricting losses from pass-through activities: Basis, the at-risk rules, and the passive loss rules. Today we’ll talk a little bit more about S corporation stock basis. Tomorrow will talk about how you can use loans to your S corporation to get basis for deductions, and Thursday we will talk about how the rules are a little different for partnerships.

S corporation basis changes every year.

–It starts with your initial investment in your S corporation stock.

-It is increased by your share of taxable income and deductible expenses, as reported in lines 1-12 of the 1120-S K-1.

-It is increased by tax-exempt income (like municipal bond income) and reduced bypermanently non-deductible expenses (like the 50% non-deductible portion of meals and entertainment expenses); these are reported on line 16 of the 1120S K-1.  If you have a business that generates depletion deductions, factor your “excess depletion” from 1120S K-1 line 15c.

– It is increased by capital contributions, which appear nowhere on the 1120S K-1.

– It is reduced by distributions, which are on line 16 of the 1120-S K-1.

If your losses exceed your basis, your losses are limited to your basis.   If you have multiple deduction items, you have to prorate them to fit your basis.

For example, Assume you started 2015 with $3,000 in basis in your S corporation shares.  You have a K-1 line 1 loss of 9,000, line 4 interest income of $2,000, and a charitable contribution passing through on line 12 (code A) of $1,000.

You have $5,000 in basis to deduct your $10,000 in in expenses – the opening $3,000 in basis plus the positive $2,000 interest income.  You pro-rate the $10,000 expenses — you can (potentially) deduct $4,500 of line 1 loss and $500 of charitable contributions.  The remaining deductions carry forward until you increase your basis via contributions, loans, or future income. I say “potentially” because you still have to clear the “at-risk” and “passive loss” hurdles.

Many S corporation tax prep programs generate helpful basis and deductible loss schedules. Not all preparers do this, though, and even when they do, they are only as good as their starting information.  If the preparer doesn’t know what you paid for your stock, the schedules can’t be correct. Ultimately, it’s up to taxpayers to track their own S corporation stock basis.

This is another of our irregular series of 2016 filing season tips, running through the April 18 filing deadline.

For more information on loss limitations from pass-throughs, check out Peter Reilly’s 2014 post Through The Hoops.

 

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TaxGrrrl, Walmart Gets Big Win Over Puerto Rico: No More ‘Walmart Tax’. Puerto Rico’s desperate revenue grabs are a preview of what states like California and Illinois will soon face.

Robert Wood, IRS Admits Audit Chance Is Small — And Dropping Like A Rock. They’re busy with other things.

Stuart Bassin, Sixth Circuit Requires IRS to Disclose Return Information of Non-Parties in Tea Party Exempt Organization Litigation (Procedurally Taxing). “The Government can continue fighting, but that seems to be an uphill battle and a battle which may produce further precedent that the Service will not like.”

Peter Reilly, Estate Denied Discounts For Marketable Security Family Limited Partnership. “This decision makes me nervous about getting discounts for any family limited partnership that consists solely of marketable securities.”

 

Jack TownsendGuest Blog: IRS FOIA Request Unveils Previously Undisclosed Estate Tax National Policy for Offshore Disclosures

Kay Bell, Which 2016 presidential candidate will cut your tax bill?

 

Scott Drenkard, A Very Short Primer on Tax Nexus, Apportionment, and Throwback Rule (Tax Policy Blog). “The best run down of these concepts can be found in our 2015 edition of Location Matters: The State Tax Costs of Doing Business.”

Stuart Gibson, Information Exchange: Bonanza for Tax Administrators, Temptation for Hackers (Tax Analysts Blog). “While many countries outside the U.S. first reacted negatively to this massive information grab, some soon began to realize the value of coordinated information exchange. They realized, as the old saying goes, ‘if you can’t beat ‘em, join ‘em.'”

Renu Zaretsky, Tax Day is around the corner, and the IRS can take your call! Today’s TaxVox headline roundup covers the eternal IRS complaints of underfunding, the DOA Obama budget tax proposals, and the subsidies Michigan paid for “Batman v. Superman,” because Michigan has solved all of its problems.

 

TaxProf, The IRS Scandal, Day 1055.

News from the Profession. AICPA and CIMA Putting This New Thing to Members for a Vote (Caleb Newquist, Going Concern).

 

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