Hello and welcome to this session. We will be looking at an example for Triple A. But before we do that, let's quickly review what Triple A stands for. Triple A stands for accumulated adjustment account. It represents the cumulative total of undistributed non-separately stated items. So, all the undistributed non-separately stated items are accounted for in Triple A. Now, why is Triple A important? Well, an S corporation is a tax flow entity. This means that when earnings are distributed to the shareholders, they are not taxed again if they are coming out of Triple A. This is because the distribution has already been taxed. So what does Triple A keep track of? Triple A keeps track of non-separately stated items and separately stated items. When the company starts, Triple A is zero. What increases Triple A? Schedule K income items other than tax-exempt income increase Triple A. It is important to note that tax-exempt income does not affect Triple A, but it does affect the basis. What decreases Triple A? Negative scheduled K adjustments, such as losses and deductions, decrease Triple A. Additionally, any portion of a distribution considered to be tax-free from Triple A also decreases Triple A. Now, let's look at an example that deals with Triple A. We will refer back to the example we looked at earlier when we calculated the basis. This is the example we will be working with: Cougar Inc. is a calendar year S-corporation. On Form 1120S, the separately stated item shows ordinary income of $80,000 for year one. Johnny owns 40% of the stock throughout the year. The following information is obtained from the corporate records: tax-exempt interest, salaries paid to John, shared will contribution, dividend received, short-term capital loss, beginning basis for John's stock, additional shares purchased by John, beginning...
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Video instructions and help with filling out and completing Are Form 1120 Schedule M 3 Adjustments
