Question

Diana is a 10% owner in an advertising agency named Bright Ideas (“BI”) (EIN 20-1234567). BI is a

Subchapter S corporation. The company reported ordinary business income for the year of $150,000.

Diana received a K-1 from BI reporting her allocation of this business income. Sarah acquired the stock

several years ago. Her basis in the stock before considering her 2017 income allocation was $92,000.

Sarah is a passive owner with respect to this entity.

How can this be filled in the attached schedule?

il Eit ViWindom Hedp Home Tools SCHEDULE Apd SCHECULSSE pdf Sign In SCHECULE Eodfx s) shown on retum. enter name securitw num Your social security numb Export PO Create PDF Edit PDF Caution: The IRS compares amounts reported on your tax return with amounts shown on Schedule(s) K-1 Part II Income or Loss From Partnerships and S Corporations any amount is not at risk, you must check the box in column (e) on line 28 and attach Form 6198. See instructions. Note: If you report a loss from an at-risk activity for which 27 Are you reporting any loss not allowed in a prior year due to the at-risk, excess farm loss, or basis limitations, a prior year unallowed loss from a passive activity (if that loss was not reported on Form 8582), or unreimbursed partnership expenses? If Combine tiles answered "Yes, see instructions before completing this section Yes No Ore Pages (b Enter P oc) Check if partnership: S Employer ification (e) Check if any amount is not at risk (a) Name for S corporation partnership Optimize POF Hill & sign Send tar Signature Passive Income and Loss Nonpassive Income and Loss (f) Passive loss allowed (attach Form 8582 if required) (g) Passive income from Schedule K-1 (h) Nonpassive loss from Schedule K-1 () Section 179 expense deduction from Form 4562 0) Nonpassive income from Schedule K-1 ?-. Send & Track Mare Tools 29a Totals b Totals 30 Add columns (g) and () of line 29a. .. . 31 Add columns () ad of line 29b . .31 32 Total partnership and S corporation income or (loss). Combine lines 30 and 31. Enter the 30 result here and include in the total on line 41 below 32 Activate Windows Part III Income or Loss From Estates and Trusts and share files in the Dorument CInud o to PC se (b) Employer Lean More (a) Name

Answer 1

Diana would report $15000 as income from BI

Sarah is owner in BI for 90%. So $135000 (150000*90%) this will be treated as ordinary income.

So Sarah in Schedule E would show $90000 (135000-45000) as taxable income from passive activity.

In Natural Sunshine Sarah owed 80% her sharee in loss is $64000 ($80000*20%) but $45000 can be deducted as this is her tax basis and the remaining $19000 (64000-45000) will be carried forward to next year to offset it from the earning or if she contributes $19000 additional to the business than it could br offset.

Now for Diana share of loss in NS is 80000*20%=$16000 but no information about her investment is given, just from the given information we could interpret that the loss which will be reported in her tax return is $1000 (15000-16000).