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Home > Taxation > Form 1120S: Deductions
Prerequisite
Overview of Federal Income Taxation or comparable
Knowledge Level
Intermediate
Copyright 2013

Publication Date
October, 2013
Form 1120S: Deductions
Introduction Organization Learning Objectives Author Bios
Title: Form 1120S: Deductions
Prerequisite: Overview of Federal Income Taxation or comparable knowledge/experience
Advance Preparation: None
Knowledge Level: Intermediate
Subject Matter Area: Taxation
Date of Publication: October 2013
Copyright © 2013 by Thomson Reuters/Tax & Accounting. All rights reserved.
Recommended CPE Credits: 7 QAS/Registry (50-minute hour)
Expiration Date: One year from date of receipt to complete program and submit quizzer to obtain credit
Passing Grade for Quizzer: 70 percent or higher

This program takes a look at deductions that may be available to the corporation, including officers' compensation, salaries and wages paid to employees, and repair and maintenance expenses. In addition, it discusses the deductibility of bad debts, rents, taxes, and interest. It also reviews depreciation methods, the luxury auto rules, the IRC §179 expensing election, cost and percentage depletion, advertising expenses, as well as pension and profit-sharing plans, employee benefit programs, amortization of start-up costs, and expenses subject to the deduction limitation rules.

Page 1 of Form 1120S requires an S corporation to list its expenses in a standard format with certain supporting schedules and forms. The ordering of these expenses as deductions is as follows:

Line 7 Compensation of officers
   8 Salaries and wages
   9 Repairs and maintenance
   10 Bad debts
   11 Rents
   12 Taxes and licenses
   13 Interest
   14 Depreciation (Form 4562)
   15 Depletion (but not oil and gas depletion)
   16 Advertising
   17 Pension, profit-sharing, etc., plans
   18 Employee benefit programs
   19 Other deductions

This program includes expert analysis by E. Lynn Nichols, CPA, and John L. Norman, Jr., JD, on audio and video.


Use of Materials

The user should begin by watching the streamed video segment, if any, or listening to the streamed audio segment, if any, for the chapter before reading the text. The user may wish to make notes of the most important concepts and any terms that are new. Next, the user should review the learning objectives at the beginning of the chapter and read the chapter. The user should work through each of the examples. After the user has studied each chapter, s/he should click on the link at the left to complete the interactive study questions. If the user answers a study question incorrectly, s/he should review the section of the text that is indicated at the end of the explanation to the study question to assure comprehension of the material. The user should review the learning objectives once more to consider achievement of the objectives. After the user has finished watching the streamed video, if any, or listening to the streamed audio, if any, and reading the text and working through the study questions, s/he may wish to review her/his notes and any sections of the text or video/audio, if any, that were difficult. When the user is ready, s/he should click on the link to the left to complete the quizzer. The user's CPE certificate will be provided immediately upon successful completion of the quizzer.

This program is divided into thirteen (13) chapters.

Chapter 1 addresses the requirements for deducting officer's compensation.

Chapter 2 discusses the rules regarding the deductibility of salaries and wages paid to employees, as well as how to determine if a worker should be classified as an employee or independent contractor and the penalties that may be imposed as a result of misclassification of employees as independent contractors.

Chapter 3 addresses how to evaluate whether the cost of repairs and maintenance should be expensed or capitalized.

Chapter 4 takes a look at the requirements for claiming a bad debt deduction and the methods of writing-off bad debts.

Chapter 5 explains the requirements for deducting rents paid by an S corporation, the factors used in determining when a lease is actually a purchase, and how to calculate the automobile lease inclusion amount.

Chapter 6 describes the deductibility of taxes and fees paid by an S corporation.

Chapter 7 discusses the types of separately stated interest expense, the interest capitalization rules of IRC §263A, and the deductions allowed for interest paid on corporate owned life insurance policies.

Chapter 8 addresses the methods and conventions used in depreciating property, the new IRC §179 deduction limits, bonus depreciation, the depreciation deduction limits on automobiles, and the current standard mileage rates.

Chapter 9 takes a look at the property eligible for depletion and the applicability of the cost and percentage depletion methods.

Chapter 10 explains the requirements for deducting advertising expenses.

Chapter 11 summarizes the deductible costs related to pension, profit-sharing, and other plans, as well as the forms required to be filed by employers maintaining these plans. Chapter 11 also addresses the deductible costs associated with employee benefit plans, such as health insurance payments, fringe benefits, and adoption and educational assistance programs.

Chapter 12 considers the deductions available for organizational and start-up costs, IRC §197 intangible assets, and travel and entertainment expenses as well as other deductible and nondeductible expenses and expenses that are subject to a deduction limitation.

Chapter 13 contains a glossary that defines frequently used key terms.

Helpful Guidance

Throughout this program, the user will find explanations and discussions regarding some of the issues that often face practitioners. In order to enhance the user's comprehension of the material and highlight important practical considerations, this program includes the following designations:

A Bisk CPEasy alert is intended to warn the practitioner of a particular situation that may require action or other consideration by the client or the practitioner on behalf of the client.

A Bisk CPEasy point presents analysis or commentary that attempts to explain or clarify statutory or regulatory authority or decisions by the judiciary.

A Bisk CPEasy tip provides practical advice that may be used to help improve client service or service to the practitioner's organization.

Upon successful completion of this program, the user should be able to properly report the various deductions on Page 1 of Form 1120S; explain the factors and consequences involved in classifying workers as independent contractors instead of employees; discuss the key criteria used in determining if an expense extends the life of an asset or adds to its value; explain the requirements for depreciating property, including the auto rules, new IRC §179 limits, and bonus depreciation; and identify expenses subject to deduction limitations.

Stephen T. Galloway, JD, is Director of Editorial for Thomson Reuters Tax and Accounting in Tampa, Florida. In this capacity, he is responsible for all content development in the Bisk CPA Review and Bisk CPEasy continuing professional education product lines, as well as all audio and video operations of the Division. Mr. Galloway previously served as Vice President of Editorial and Audio/Video Production at Bisk Education, Inc., for 22 years. Mr. Galloway's background also includes more than a decade of legal and public accounting experience, mostly in the tax and litigation services groups of Coopers & Lybrand, LLP (now PricewaterhouseCoopers, LLP). He has authored several books and monthly publications in the area of taxation, as well as produced numerous audio and video programs in taxation, accounting and auditing, and graduate-level business administration. Mr. Galloway earned his Bachelor of Arts degree in Social and Behavioral Sciences from The Johns Hopkins University and his Juris Doctorate from University of Maryland Francis King Carey School of Law. He is a member of the American Bar Association. (Author)

James T. Hemelt, JD, CPA, is an adjunct professor in the Georgetown University School of Business and consults frequently on federal income tax matters, particularly in the areas of corporate transactions and financial statement reporting issues. The majority of Mr. Hemelt's experience has been in the public accounting environment where he worked with a variety of corporate clients regarding the federal tax implications of merger and acquisition transactions as well as assistance with income tax reporting matters. Mr. Hemelt has spent his entire career working in the international tax area, both transactional issues as well as tax compliance and financial statement reporting issues. (Contributing Author)

E. Lynn Nichols, CPA, a practicing CPA for more than 45 years, is the founder of Nichols Patrick CPE, Inc., a developer of continuing education programs and practice aids for CPAs. He is a regular contributor to CPE Network®, a volunteer member of the tax division of the AICPA, a member of the Board of Visitors of the School of Accounting in the College of Business of the University of Oklahoma and a former member of the Editorial Board of the Ohio CPA Journal. Mr. Nichols was twice honored by the Ohio Society of CPAs for service to the accounting profession. Mr. Nichols serves as an advisor to CPA firms across the U.S. on matters of federal income taxation, litigation services, and IRS procedures. He has authored more than 20 highly rated tax CPE programs and his Current Federal Tax Developments program is always among the highest rated in the nation. (Contributing Author/Speaker)

John L. Norman, Jr., JD, is an attorney in private practice in Washington, D.C., where he specializes in closely held business organizations, as well as estate and financial planning. He is the former National Director of Taxation for the accounting firm Pannell Kerr Forster, and the former chair of PKF's International Tax Committee. Jack also taught numerous CPE and CLE courses and also at several universities. He is a regular contributor to CPE Network®. (Speaker)

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