Small Business Taxes & ManagementTM--Copyright 2018, A/N Group, Inc.
We've developed a business checklist to assist you in preparing your S corporation return. The checklist is intended for S corporations, but the majority of the items apply to sole proprietorships. The checklist assumes you're starting with an income statement and balance sheet, that is, you're using your accounting income and applying it to your tax return. Thus, you should already have accounted for all your income and expenditures. The checklist will help you put the numbers on your tax return. For example, using the 50% rule for meals and entertainment expenses, claiming the Sec. 179 expense election. Most of the tax law changes will affect 2018 returns. However, new rules apply to assets purchased after September 27, 2017. Caution. If you're using a computer program to prepare the return (and you should) the tax software should handle many items automatically if you enter them in the correct spot.
___ Review last year's return
___ Review last year's return K, M-1 schedules
___ Review minutes of board/members/shareholders' meetings
___ Review carryover information
___ Changes in shareholder/partner names, addresses, holdings
___ Change in corporation's name, address
___ Initial return? Final return? Change in S status?
___ Change in business activity? Business codes revised for 2017
___ Audit adjustments made by IRS or state tax authorities
___ Changes in loans to/from business by shareholder/partner
___ Additional capital contributions
___ More than 50% change in ownership?
___ Any shareholders a disregarded entity, trust, estate or nominee? (Schedule B, Q3)
___ Any ownership by foreign person or entity? Ownership in foreign entity(Schedule B, Q4)
___ Repayment of loans from shareholders? Income reportable?
___ Any below market-rate loans?
___ Loans to/from business by related parties documented?
___ 1099-INT, 1099-DIV, 1099-MISC filed for payments including related parties
___ Make sure all questions on forms and schedules answered
___ Form 1125-E, Compensation of Officers if receipts exceed $500,000
___ Any actions that could terminate S election (e.g., prohibited shareholders)
___ Could any debt be reclassified as second class of stock
___ Restricted stock? Warrants or stock options?
___ Accumulated earnings and profits from former C corporation?
___ Sale of built-in gain asset?
___ Excess passive income?
___ Interest in foreign entity/ownership by foreign shareholders?
___ Applicable larger employer (ALE) for health care reporting?
___ If cash basis accounting is accrual required?
___ Can cash basis be elected?
___ Check accruals for economic performance, recurring item, related party, 8-1/2 and 3-1/2 month rules
___ Check conformance with prior accounting methods and treatment
___ Related party transactions
___ 2-1/2 month rule for deductions
___ Related entities; common control rules
___ Losses in Presidentially declared disaster area
___ Net unrealized built-in gains that must be reported
___ Review financial statements and footnotes
___ Prior year installment sale carryovers
___ Cancellation of debt income?
___ Significant modification of debt
___ Issuance of additional shares; allocation of gains and losses
___ Lessee improvements of property that revert to lessor
___ Bartering transactions
___ Elect out of installment sale
___ Ownership in life insurance contracts; Form 8925
___ Change in accounting for any items?
___ Status of shareholder-passive, nonpassive, material participation, logs
___ Ownership in or transactions with related foreign individuals or entities?
___ Interest in foreign financial accounts?
___ Compare sources of income year-to-year, examine differences
___ Compare expenses year-to-year, examine differences
___ Change in interest or dividend income?
___ Separate reporting of interest, capital gain, rental etc. income and expenses for K-1
___ Equalization distributions for state composite returns, withholding payments
___ Fixed asset sales, abandonments, involuntary conversions?
___ Sales of investment assets?
___ Depreciation recapture
___ Section 1250 unrecaptured gain?
___ Property distributed to shareholder/partner? Gain on assets?
___ Increased personal use of business property; 50% threshold breached
___ Like-kind exchanges (Form 8824)
___ Party to applicable asset acquisition-purchase or sale (Form 8594)
___ Schedule M-3 required?
___ Difference in basis of assets sold for state or AMT purposes
___ Rental real estate activities reportable on Form 8825
___ Accounting for long-term contracts?
___ Income for tax, not books
___ Income for books, not tax (e.g., prior year tax)
___ Advance payments that can be deferred
___ Write-off of bad debts for tax, not book
___ Treatment of prepaid expenses
___ Net investment income reporting requirements (1120S instructions)
___ Documentation for loans on file?
___ Self-charged interest reporting requirements
___ Deduction of business start-up and organization expenses
___ Categorization of rent expense--lease or purchase?
___ Inventory writedowns
___ Shareholder adequate compensation
___ Schedule 1120-E required?
___ Shareholder health insurance on W-2
___ Vacation pay accrual
___ Uniform capitalization rule for inventories
___ Book/Tax accounting differences
___ Details for balance sheet entries
___ Passive/nonpassive activities, grouping
___ 100% deduction for certain meals & entertainment
___ 50% deduction for meals & entertainment
___ Special rules sporting events; skyboxes, etc.
___ Per-diem vs. actual expenses for travel
___ Documentation for T&E, mileage
___ Nondeductible (personal) expenses
___ Sale of interest by shareholder
___ Sale of qualified community assets
___ Special rules in presidentially declared disaster areas
___ Sale of livestock on account of weather
___ Replacement property acquired for casualty losses (disaster area rules)
___ Adequate disclosure for accuracy-related penalty
___ Reportable transaction disclosure
___ Nondividend distributions (Form 5452)
___ Corporate minute book up to date?
___ Forms 5500 filings for retirement and welfare benefit plans
___ Retirement plans in conformance with latest required changes
___ Contribution for retirement plans made?
___ Reporting of reimbursement of employee moving expenses, tuition reimbursement
___ Spousal travel reported on W-2
___ Special rules for foreign entities
___ Reporting requirements for cash payments received in excess of $10,000
___ Losses or credits suspended due to at-risk limitations
___ Losses or credits suspended due to basis limitations
___ Losses on transactions between related parties
___ At risk rules
___ Distributions in excess of basis
___ Material participation by shareholder/partner/member? Documentation needed?
___ Section 351 statement required?
___ Recapture of credits?
___ Personal use of business property reported on employee's W-2 (1099-MISC for independent contractor)
___ Cents-per-mile vs. annual lease method for personal use of vehicles
___ Adequate records to substantiate business use
___ Lease inclusion amount for luxury vehicles
___ Allocation of business/personal use including expenses
___ Definition of auto/truck/SUV/nonpersonal use
___ Special rules for vehicle donations
___ More than 50% business use of vehicle other listed property
___ Questions on usage of listed property
___ State filing requirements, nexus
___ State-federal differences (e.g., depreciation, Sec. 179 limit)
___ Shareholder requirements to file nonresident personal return; composite returns
___ Withholding for nonresident shareholders
___ Apportionment factors, unitary filing
___ State S corporation, LLC, partner status
___ Annual report, license filings current
___ Depreciation methods--Sec. 179; 50% bonus depreciation; elect out of bonus
___ Depreciation Checklist
___ Repair or capital expenditure?
___ Expensing; $2,500 election; $5,000 election (audited financial statements)
___ Section 179 election for off-the-shelf software or 36-month depreciation
___ Special rule for property received in a like-kind exchange
___ Check property classes for assets
___ Mid-quarter convention applicable?
___ Special rules for qualified leasehold improvements, qualified restaurant property and qualified retail property
___ Capitalization of leased property or equipment?
___ Determine if listed property rules apply, required recordkeeping
___ On Form 4562 reconcile to asset/depreciation worksheets
___ Difference state/federal/financial statement depreciation?
___ Account for AMT depreciation
___ Sale of asset basis differences for state tax; AMT tax; book/tax difference
___ Expense/amortize startup and organizational expenditures
___ Remove assets abandoned, sold or otherwise disposed of
___ Charitable contributions--qualified organizations
___ Charitable contribution or advertising expense?
___ Charitable contribution vs. cost of goods sold
___ Property contributions--special rules, food, valuation, etc. Form 8283
___ Special rules for contributions of appreciated property
___ Conservation easements
___ Appraisal required for charitable contribution?
___ Reduction of contribution for services or goods received
___ Required documentation for contributions
___ Lobby activities not deductible
___ Penalties not deductible
___ Club dues
___ Expenses allocable to portfolio income
___ Capitalization of professional fees or salaries required?
___ Partially worthless debts?
___ Accrued rent, interest, etc. between related parties
___ Sec. 409A deferred compensation rules applicable?
___ Proper allocation of interest expense made
___ Association dues include lobbying expenses?
___ Contributions to retirement plans made?
___ Sec. 266 election to capitalize carrying charges on non-productive property
___ New tangible property regulations
___ Amortization of acquired intangible assets
___ Deduction for domestic production activities, Form 8903
___ Deduction for state and local income taxes
___ Tax on excess net passive income
___ For S corporations, designate distributions deemed out of earnings and profits
___ Check dates and amounts of estimated tax payments
___ Credit for taxes paid on fuels (Form 4136)
___ Credit for increasing research activities (Form 6765)
___ Credit for building rehabilitation
___ Energy credits
___ Disabled access credit
___ Qualified electric vehicle credit
___ Credit for employer social security and Medicare taxes paid on certain tips
___ Credit for renewable energy
___ Credit for contributions to community development corporations
___ Work opportunity tax credit (WOTC, Form 5884)
___ New markets tax credit (Form 8874)
___ Credit for small employer pension startup costs (Form 8881)
___ Credit for employer provided child care expenses (Form 8882)
___ Credit for small employer health care premiums (Form 8941)
___ Credit for federal tax on fuels (Form 4136)
___ Credit for differential pay active military duty (Form 8932)
___ Credit for Social Security and Medicare paid on certain employee tips (Form 8846)
___ Income allocation for part-year shareholder
___ Interest expense related to investments; special situation disallowance
___ Revaluation of beginning inventory; Sec. 481
___ Reconcile book and tax inventory write-down
___ Recurring item exception to economic performance rules
___ Bad debts-specific write-off method; small business exception
___ Distributions in excess of accumulated adjustments account (AAA)
___ Repayment of loans from shareholders where loan basis impacted
___ Gain recognition on distribution of appreciated property
___ Separate reporting rules for rental activities, portfolio income, gains and losses, Sec. 179, etc.
___ Charitable contributions; appraisal requirements; listing
___ Self-charged interest
___ Domestic production activities deductions
___ New activities; start-up expenses
___ Related entity rules
___ Carryover items? Sec. 179?
___ Deferred compensation; Sec. 409A
___ Retirement plan contributions made?
___ Nondeductible penalties
___ Capitalization of salaries/professional fees required?
___ Costs to acquire/create intangibles
___ Debt restructuring; significant modification
___ Distributions; distributions in excess of basis
___ At-risk information
___ State adjustments for basis, at risk, income
___ Tax preference items
___ Recapture information
___ Debt-financed distributions
___ Shareholder loan repayments
___ Grouping activities passive activity rules; net investment income rules
___ Life insurance officers and key employees
___ Disability on officers/shareholders/owners
___ Leasehold improvements, rent adjustments
___ Replacement period for casualty losses
___ Worthless securities
___ Special rules for short-year returns
___ Transfer of property for services
___ Former C corporation? Special M-2 treatment; passive income; built-in gain asset
___ Recapture of credit; shareholder reporting
___ Interest in tax shelter
___ Substantial authority/reasonable basis tax position (Form 8275)
___ Tax shelters and reportable transactions (Form 8886)
___ Environmental cleanup expenses
___ Deductibility of interest
___ Changes in reserve accounts for M-1 reconciliation
___ Domestic production activities deduction; Form 8903
___ Fringe benefits 2% shareholders
___ Long-term leases deferred payments
___ Casualty or theft loss
___ Noncash charitable contribution
___ Disability insurance premiums
___ Information on foreign assets/bank accounts
___ Interest in foreign bank account?
___ Interest in/transfers to any foreign entities?
___ Report of Employer-Owned life insurance policies (Form 8925)
___ Required state returns; new states; nexus
___ Disaster relief available?
___ IRS address change for paper returns
___ Engaged in any passive activities? Grouping of activities ___ S corporation status inadvertently terminated? Request relief (state also)
___ Expenses that are nondeductible penalties
___ Any qualified leasehold, restaurant, or retail property for 15-year depreciation
___ Note new, 100% bonus depreciation rules for property acquired after September 17, 2017
___ State returns; apportionment; modifications
Elections and Statements
___ Form 3115, Application for Change in Accounting Method needed?
--Last Update 02/16/18
___ Tangible property-de minimis safe harbor statement
___ Building expenses-expenses safe harbor for small taxpayers
___ Capitalization of amounts paid or incurred for employee compensation or overhead
___ Capitalization of repair and maintenance expenditures
___ Capitalization of rotable, temporary, or standby emergence spare parts
___ Partial asset disposition
___ Election to distribute accumulated earnings and profits first
___ Election to expense or amortize organization expense
___ Election to allocate income on change in stock ownership
___ Election to terminate tax year on termination of shareholder interest
___ Amortization of business start-up costs
___ Election to not use bonus depreciation
___ Section 351 statement for assets transferred on incorporation
___ Research and experimental election
___ Recurring item exception from economic performance
___ Treatment of real property taxes
___ Qualifying disaster losses on preceding year's tax return
___ Replacement of casualty loss property compensated by insurance
___ Cancellation of debt, Sec. 108; adjustment of basis Sec. 1017
___ QSub election
___ Below market interest rate on loans between related parties; asset acquisition/sale
___ Carrying charges--election to capitalize (Sec. 266)
___ Charitable contributions (inventory, scientific or research equipment, etc.)
___ Long-term contracts, simplified cost-to-cost method
___ Applicable asset acquisition (Form 8594)
___ Reorganization statement
Copyright 2018 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
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--Last Update 02/16/18