Hello and welcome to the session. We will be discussing how to divide income from an S corporation among the shareholders. This income is divided into two categories: separately stated and non-separately stated items. Separately stated items are further divided into separately stated income or loss and non-separately stated items. Let's take a look at an example using the 1120s form. On this form, we have gross receipts, returns and allowances, cost of goods sold, net gain other income, total income and total losses, expenses such as compensation expense, salaries, wages, repair maintenance, bad debt, taxes and licenses, until we finally reach ordinary income and loss. Ordinary income and loss falls under non-separately stated items, which means they are netted out together. On the other hand, separately stated items include income, losses, deductions, and credits that affect the tax liability of shareholders differently. Examples of separately stated items include tax-exempt income, gains and losses from disposal of business property, capital assets, contribution income and loss, rental and real estate interest, and dividends and royalties. These separately stated items are listed separately on schedule B and schedule K of the 1120s form. You may be wondering why we separate these items from ordinary income. The reason is that S corporations flow income or loss to the shareholders, and certain items retain their character and affect each shareholder separately. For example, if you have already reached the limit for charitable contributions on your personal return, including additional contributions from the S corporation would cause you to exceed the limit. The same goes for net capital losses. To avoid double-dipping and ensure proper taxation, these items are listed separately and subject to certain limitations. This allows shareholders to accurately calculate their own tax liabilities. I hope this clarifies the concept of dividing income...