Example of Separately Stated Items

Lesson: Example of Separately Stated Items

In this lesson, Nick Palazzolo, CPA, delves into the intricate topic of separately stated items and their impact on a shareholder's basis. With an engaging, energetic approach, he walks through a detailed example involving ABC Corp and its sole shareholder, Nathan, highlighting common financial activities and how they're allocated for tax purposes. With a focus on ordinary business income calculation and the importance of proper reporting on various schedules of the tax form, Nick breaks down complex concepts with ease. He makes sure to clarify how items like health insurance premiums and payroll taxes are treated, and explains the significance of understanding the flow-through of these items to Nathan's individual Form 1040. By the end of the lesson, the calculation of Nathan's ending stock basis and taxable income become crystal clear, demystifying the process of how separately stated items affect a shareholder's tax obligations.

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Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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All right, we got another example here. Separately stated items, how it affects basis, all this good stuff. You are excited. I am just jumping up and down in my chair ready to go through it. ABC Corp has one shareholder, Nathan, who owns 100% of the company. Nathan's basis in his ABC Corp stock at the beginning of the year is $50,000. ABC Corp had the following financial activities during the tax year. Just take a look all through here. I'm not going to read them all out, but we'll pick and choose which items we need. And it's important for you to understand where do these items all go? And that will come with time. If you're freaking out right now saying, I have no idea where all this all goes, that will come with time. So if something here is not being used, it likely is going to just flow right to the 1040. We'll see how, for example, how our payroll tax has affected health insurance premiums. We'll see some of these more strange items, how they affect everything. Now diving down here, we're calculating our ordinary business income. That's going to consist of just gross sales minus cost of goods sold minus operating expenses. And we're going to take into account all those items we saw on the face of the 1120. First off, gross sales, 300,000 minus cost of goods sold. That's minus 120. We're going to subtract out all the operating expenses as well. These are pretty much standard middle of the road. These are 70,000 of salaries and wages, things you'd see in C Corps as well. Rent expense, 15,000 of depreciation expense plus $10,000 of our payroll taxes. That is going to get us 180,000 minus 115,000 for a total of

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S Corporations

Module: 2 Concepts, 28 Videos

S Corporations: Eligibility and Election Overview

3:48

Introduction to S Corporations: Eligibility and Election

2:21

Shareholders of an S Corporation

4:57