Retained Earnings Adjustment on Schedule M-2
Retained Earnings on Schedule M-2 We frequently receive questions on the Bukers Hotline about spreading the Schedule M-2 of Form 1120S, specifically regarding retained earnings adjustments. While it can be somewhat uncommon to have retained earnings adjustments on the Schedule M-2, they are important items to be aware of when spreading an S Corporation tax return. […]
W-2 Wages and Stock Options: What Lenders Need to Know
W-2 Wages and Stock Options: What Lenders Need to Know Have you ever seen the sale of stock on Schedule D with identical purchase and sale dates? At the same time, the sales price is the exact same amount (or close to it) as the cost? This indicates the exercise of stock options by your borrower. […]
Federal Tax Refunds: Should They Be Included in Cash Flow?
Federal Tax Refunds: Should They Be Included in Cash Flow? Should the Federal tax refund be included in the cash flow analysis of your borrower’s tax return? This is a question we commonly hear from lenders and analysts. Most individuals receive tax refunds when they file their Form 1040. But, is this something we should actually […]
Schedule F vs. Form 4835: Key Differences for Lenders
Schedule F vs. Form 4835: Key Differences for Lenders Did you know that farming income can either be reported on Schedule F or Form 4835 in your borrower’s tax return? An analyst recently reached out to our experts through the Bukers Hotline asking what the difference is between these two forms. The difference is […]
Revocable Living Trust Listed as Partner on a K-1
Revocable Living Trust Listed as Partner on a K-1 What Does This Mean and How Does This Impact Cash Flow? An analyst recently called the Bukers Hotline and asked, “I have a partnership K-1 paying sizeable distributions to the partner listed as David Smith Revocable Living Trust. How do I cash flow this with respect […]
Different S-Corporation Distributions Reported on Form 1120-S – Which is Correct?
Different S Corporation Distributions Reported on Form 1120-S How to Properly Identify Actual Distributions Have you ever spread a business tax return for an S corporation and noticed that the Form 1120-S reported multiple different distribution amounts? This may result in an out-of-balance retained earnings reconciliation within your analysis. It’s imperative that you use the […]
Why AGI Is Not a Reliable indicator of Borrower Cash Flow
Why AGI is Not a Reliable Indicator of Borrower Cash Flow We have heard this question and/or argument since we started teaching Taxanalysis almost 40 years ago. Some people want to keep their tax return analysis “simple” because it makes them more “efficient,” even though AGI and AGI-based approaches lead to amazingly wrong cash flows. […]
Schedule D Real Estate Sales: Overlooked Adjustments That Impact Cash Flow
Schedule D Real Estate Sales: Overlooked Adjustments That Impact Cash Flow The Schedule D reports capital gains and losses from the sales of investment assets. When a borrower sells real estate, the transaction will be reported on the Schedule D. There are two very critical adjustments we need to make for our cash flow analysis that are consistently […]
Form 8990 and Business Interest Expense: Cash Flow Considerations
Form 8990 and Business Interest Expense: Cash Flow Considerations Have you ever come across the Form 8990 in an individual or business tax return and wondered if this impacts your cash flow analysis? This form can provide key information regarding the total interest expense paid by an individual or business; here’s what you should know. […]
K-1 Contributions: Cash vs. Noncash
K-1 Contributions: Cash vs. Noncash Are They Capital Contributions or Charitable Contributions? Have you ever looked at the Schedule K-1 from an S corporation and found values reported on Line 12 Other Deductions with corresponding letter codes, but no description of the actual deduction? An analyst recently called into the Bukers Hotline with a K-1 […]
Schedule K-1 with W-2 Wages: What Lenders Nee to Know
Schedule K-1 with W-2 Wages: What Lenders Need to Know Have you ever come across a Schedule K-1 that reports W-2 wages? Does this represent actual cash wages received by the recipient of the K-1? An analyst recently called into the Bukers Hotline with this exact question to determine if and how this affects their […]
Single-Member LLC on Schedule C
Are the income and expenses shown on a Schedule C of a single-member LLC real cash flow?
Section 1031 Exchanges with Zero Gain
Section 1031 Exchanges with Zero Gain Does a Section 1031 exchange with zero recognized gain create a cash impact to the borrower? Section 1031 exchanges, also referred to as like-kind exchanges, can result in massive tax savings for your borrowers. This is very popular and something you’ll often see for borrowers with real estate investments, […]
Section 179 Expense From Flow-Through Entities
Section 179 Expense From Flow-Through Entities Is This Real Depreciation? An experienced lender called into the Bukers Hotline this month with a question about Section 179 expense and the Schedule E. Here’s the situation: Schedule E, page 2, column j shows “Section 179 expense deduction from Form 4562” of $20,000. The lender understands that […]
Capital Loss Carryovers – Are They Cash Flow?
Capital Loss Carryovers – Are They Cash Flow? The Scenario An analyst who called the Bukers Hotline has a borrower with a Schedule D that shows: A short-term capital loss carryover of ($121,000) on line 6 A long-term capital loss carryover of ($374,000) on line 14 However, only ($3,000) of those total losses […]
Why Does My Borrower Have Multiple Schedule D’s?
Why Does My Borrower Have Multiple Schedule D’s? Have you ever noticed two different versions of the Schedule D included with your borrower’s Form 1040? How can you tell which version of the Schedule D should be used for your cash flow analysis and which one should be ignored? An analyst recently called into the […]
Does a Change in Partnership Interest Affect a Borrower’s Cash Flow?
Does a Change in Partnership Ownership Affect a Borrower’s Cash Flow? Have you ever looked at a Schedule K-1 from a partnership and seen significant decreases in the profit, loss, and/or capital percentages? An analyst recently called into the Bukers Hotline to ask whether she needs to make an adjustment to her cash flow analysis […]
W-2 Wages and Cash Flow: What Should Be Included?
W-2 Wages and Cash Flow: What Should Be Included? An experienced banker called into the Bukers Hotline with a great question on wages and the Form W-2. Here was the situation: The borrower’s Form 1040 reports $210,000 on line 1 “Wages, salaries, tips, etc.” The attached Form W-2 reports the same $210,000 on box […]
Using Form 8995 to Identify Your Borrower’s K-1s? Think Again!
Using Form 8995 to Identify Your Borrower’s K-1s? Think Again! When analyzing the cash flow of an individual who is either a business owner or has investments in multiple businesses, your immediate priority is to make sure that you have received a copy of every Schedule K-1 that the individual has received. Whether the K-1 […]
Excess Distributions: Are They Cash Flow?
Excess Distributions: Are They Cash Flow? The Bukers Hotline received a call from a banker analyzing a Schedule D that included a long-term capital gain from excess distributions for about $10 million. Where do excess distributions come from? Is this cash flow for our prospective borrower? The Schedule D is by far one of […]
Form 7203: Understanding S Corporation Contributions and Basis
Form 7203: Understanding S Corporation Contributions and Basis Every year the IRS issues new regulations and publishes new tax forms. There is one new form, Form 7203, that you may start seeing with your borrower’s most recent individual income tax returns. This form can be extremely helpful for your cash flow analysis of S corporation […]
New 2021 Tax Forms: Schedule K-2 and Schedule K-3
New 2021 Tax Forms: Schedule K-2 and Schedule K-3 As you start analyzing your borrower’s 2021 tax returns, you may find the new Schedule K-2 and Schedule K-3 included with your borrower’s business tax returns and associated Schedule K-1s. These new schedules may look daunting as they can include a ton of information, but we’re […]
Tax-Exempt Interest Income on Form 1040
Tax-Exempt Interest Income on Form 1040 We recently received a call to the Bukers Hotline from a banker who was analyzing her borrowers 2020 Form 1040. She noted the whitepaper detail for Line 2a Tax-Exempt Interest listed a partnership that the borrower was a partner in as the source for the tax-exempt interest income. Is […]
Why Would an LLC Owner Stop Receiving a K-1?
Why Would an LLC Owner Stop Receiving a K-1? We recently received a great question to the Bukers Hotline from an analyst who was spreading her borrower’s tax returns in the Bukers Taxanalysis and BTA Pro software. The borrower operated multiple rental properties through an LLC; for this article let’s call this ABC Rentals, LLC. […]
K-1 Other Increases and Decreases: What the Lender Should Know
K-1 Other Increases and Decreases: What The Lenders Should Know We frequently receive questions on the Bukers Hotline about spreading and properly analyzing K-1s received by individual borrowers, including this most recent question about an “Other Increase” that deserves to be highlighted. This caller was analyzing a borrower’s K-1 from an S-corporation and the caller […]
Shareholder Basis Worksheet: What It Reveals
Shareholder Basis Worksheet: What It Reveals We have received many great questions on the Bukers Hotline recently, including a question about a Shareholder’s Basis Worksheet that a lender received with her borrower’s S-corporation K-1. If you have a borrower who is a shareholder in an S-corporation, you are now more likely to find a shareholder’s […]
Schedule K-1 Sections M and N: What Lenders Should Know
Schedule K-1 Sections M and N: What Lenders Should Know We’ve recently received a great question via the Bukers Taxanalysis hotline that deserves some explanation. The caller asked us to explain what is being presented in Sections M and N on the Schedule K-1 of Form 1065, and specifically if they affect the cash flow […]
Form 1065 Schedule K-1 Box 14 Self-Employment Earnings: Are They Cash Flow?
Form 1065 Schedule K-1 Box 14 Self-Employment Earnings: Are They Cash Flow? Many of our users have called the hotline asking if Box 14 (self-employment earnings) on the partnership Schedule K-1 should be included as cash flow to an individual. Since we receive this question often, we felt it was worth explaining in greater detail […]
Schedule K-1 Line 19 Distributions: When Are They Cash Flow?
Schedule K-1 Line 19 Distributions: When Are They Cash Flow? Schedule E, page 2, column (k) shows nonpassive income of $135,460. The Form 1065 Schedule K-1 shows two types of distributions on line 19. One distribution is shown in the amount of $75,000 with the letter “A” in front of it. The second distribution is […]
Employee Business Expenses After Tax Reform: What Changed?
Employee Business Expenses After Tax Reform: What Changed? The Tax Cuts and Jobs Act of 2017 changed the tax deductibility of unreimbursed employee business expenses for most individuals. Specifically, the deductibility of unreimbursed employee expenses on Form 2106 is now limited to Armed Forces reservists, qualified performing artists, and a few other groups of taxpayers. […]
Net Operating Losses After Tax Reform: Cash Flow Considerations
Net Operating Losses After Tax Reform: Cash Flow Considerations Due to recent tax reform, there has been a change in the tax law for net operating losses (NOLs). While the cash flow treatment of NOLs remains the same, its appearance on tax returns may be different. Before the recent tax reform, NOLs could either […]