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S Corp Schedule K-1 (1120-S), Box 17, code AJ and V: How to fill out w/ Freetaxusa

weebieweeb

I'm helping my mom filing her taxes this year w/ freetaxusa, and I'm stuck on her Schedule K-1. My mom is a co-owner of a restaurant, and the Schedule K-1 she got this year has box 17 with code A, AC, AJ, and V.

Code A has a dollar amount with it, so I know how to enter it into freetaxusa.

For AC and Aj, there's an attachment. AC has a clear number for it, so I can enter it into freetaxusa. However, there are 2 AJs number that are like this:
AJ: Aggregate Business Activity Gross Income: $XX
AJ: Aggregate Business Activity Total Deductions: $XX
And the total deductions number is less than the gross income number.

Question 1: In freetaxusa, box 17 code AJ's description is "Excess business loss limitation", which matches neither of the descriptions on the K-1. How do I calculate this to enter into freetaxusa?

Question 2 (more like guidance):
For code V, there is a Statement A - QBI Pass-Through attachment for it. There are numbers for QBI box, W2 wages box, and the UBIA box. Which number do I need to enter into freetaxusa when I enter in the K-1 numbers?
And from what I can find online, it seems like I also need to enter in the QBI box, the W-2 Wages box, and the UBIA of Qualified Property box on a separate screen on freetaxusa (right after when I entered in the K-1 numbers). Just wanted to ask if my understanding is correct.

Thanks all!

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Accepted answers

KristineS

Hi weebieweeb, thanks for writing in with your question.

Working in reverse order with question #2 first, in Box 17, select code V in the drop down menu. Leave the amount field blank. As you note, when you 'Save and Continue' the next page that comes up allows you to enter the appropriate amounts for the different categories of QBI, wages, etc.

For question #1 about Box 17 code AJ, according to the Shareholder's Instructions for Schedule K-1 (Form 1120-S), the number to enter on this line is figured from the aggregate gross income/gain less the aggregate deductions. You will use Form 461 to figure that amount, which may or may not require help from the preparer of the K-1.

Here is the precise language from the instructions, (emphasis added)

"Code AJ. Excess business loss limitation.

If the corporation has deductions attributable to a business activity, it will provide a statement showing the aggregate gross income or gain and the aggregate deductions from the business activity that you need to figure any excess business loss limitation. See section 461(l) and the Instructions for Form 461 for details."

I am not a K-1 expert and invite any community members to please add relevant comments. Many hands make light work!

All comments

KristineS

Hi weebieweeb, thanks for writing in with your question.

Here is the precise language from the instructions, (emphasis added)

"Code AJ. Excess business loss limitation.

I am not a K-1 expert and invite any community members to please add relevant comments. Many hands make light work!

Scottie

Hi Guy's, don't know if you found all the information you'd been seeking for the K-1 Situation with your mom's 1120s Tax filings situation. But, since this is the first year I also will file 1120s and I'm not quite sure how the past-thru income situation works, what stays on the 1120s and what gets passed thru, I reasoned this as interesting question I also could probably benefit from knowing the answer to aquestion like this myself. To that end, I asked "Chat Gpt" Here's what the "computer brain" of Chat Gpt had to say about the situation:

"You're right, the situation with the K-1 codes can be a bit confusing. Here's how to handle them:

Question 1: Excess Business Loss Limitation (AJ)

The information on your mom's K-1 seems a bit mixed. Here's how to decipher it:

Freetaxusa Description: Freetaxusa describes code AJ as "Excess business loss limitation," but the K-1 itself shows both gross income and total deductions under code AJ.
Actual Information: The K-1 likely intends to provide the information needed to calculate the excess business loss limitation, not the final limitation itself.

How to Calculate:

While Freetaxusa might not directly ask for separate gross income and deductions, you can still calculate the potential excess business loss for your mom:

Subtract deductions from gross income: Take the higher AJ number (gross income) and subtract the lower AJ number (total deductions).
Compare to threshold: This result will be your mom's potential excess business loss. However, there's a threshold amount (adjusted for inflation) that limits how much loss she can deduct in a single year. You can find the current threshold on the IRS website.
Use the relevant number: If the result from step 1 is greater than the threshold, the excess becomes the "excess business loss limitation." However, if it's lower than the threshold, there is no limitation, and the entire loss can be deducted.

Entering Information in Freetaxusa:

Freetaxusa might not have separate fields for gross income and deductions under code AJ.
Look for a section where you can enter additional information related to code AJ.
There, explain that you're providing the information to calculate the potential excess business loss.
Enter the higher AJ number (gross income) and the lower AJ number (total deductions) with a brief explanation.

Question 2: Code V and Statement A - QBI Pass-Through

Yes, your understanding is correct! Here's how to handle code V:

Statement A - QBI Pass-Through: This attachment provides details on your mom's Qualified Business Income (QBI).
Numbers to Use: You'll need three numbers from Statement A:
- QBI box: This is the key number representing her share of the qualified business income from the restaurant. Enter this in the designated field for code V in Freetaxusa.
- W-2 wages box: This shows any wages she received as an employee of the restaurant. Enter this amount in the appropriate section for W-2 wages in Freetaxusa.
- UBIA of Qualified Property box: This reflects the unrelated business income attributable to qualified property. Enter this amount in the designated field for UBIA in Freetaxusa.

Separate Screen for QBI, Wages, and UBIA:

You're right again. After entering the K-1 information, Freetaxusa might have a separate screen specifically for QBI, wages, and UBIA. Enter the corresponding numbers you obtained from Statement A - QBI Pass-Through on this separate screen.

Additional Tips:

If you're unsure about any specific steps or have doubts about calculations, consider consulting a tax professional for guidance.
Keep a copy of your mom's K-1 and the calculations you made for the potential excess business loss for future reference. https://www.irs.gov/newsroom/excess-business-losses

Let me know in the comments if this answer is apropriate.

meridianm

Thanks to all, this is so helpful! I am also a daughter helping my mom file her taxes for a small business she is part owner of, so I love this question and answer! (And high five to weebieweeb for being in the same position!)

My mom's K-1 also has a statement for Box 17 code K. The code K lists an asset, the date sold, the sale price, the cost basis, the allowed depreciation ("zero" in this case), and a Section 179 expense deduction previously reported (which is the exact same value as the cost basis). Do I deduct the cost basis from the sales price? Or how do I calculate the correct figure for Box 17 code K?

Many thanks!