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What are Retained Earnings Adjustments on Schedule M-2 for a Form 1120S?

What are Retained Earnings Adjustments on Schedule M-2 for a Form 1120S? 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 […]

W-2 Wages and Stock Options

W-2 Wages and Stock Options 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. As a result, your borrower’s […]

Should I Include the Federal Tax Refund in My Cash Flow Analysis?

Should I Include the Federal Tax Refund in My Cash Flow Analysis? 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 […]

What is the Difference Between Schedule F and Form 4835?

What is the Difference Between Schedule F and Form 4835? 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 […]

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 […]

Why is AGI Not a Good Indicator of Cash Flow to a Borrower?

Why is AGI Not a Good Indicator of Cash Flow to a Borrower? 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 […]

The Most Overlooked Adjustments of Real Estate Sales on Schedule D

The Most Overlooked Adjustments for Real Estate Sales on Schedule D 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 Impact

Form 8990 and Business Interest Expense: Cash Flow Impact 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. […]

Cash and Noncash Contributions on a K-1

Cash and Noncash Contributions on a K-1 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 […]

Schedule K-1 with W-2 Wages

Schedule K-1 with W-2 Wages 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 personal cash flow analysis.   The […]

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

Section 179 Expense From Flow-Through 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 Section 179 […]

Capital Loss Carryovers – Are They Cash Flow?

Capital Loss Carryovers – Are They Cash Flow? A Schedule D shows a short-term capital loss carryover of ($121,000) on line 6 and a long-term capital loss carryover of ($374,000) on line 14. However, only ($3,000) of those total losses carries to Form 1040 line 7 due to the capital loss limitation rules. Which of these […]

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 […]

Which W-2 Wages Are Used For Cash Flow?

Which W-2 Wages Are Used For Cash Flow? 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 1 […]

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: What Are They and Are They Cash Flow?

Excess Distributions: What Are They, and 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 […]

Form 7203: New Form to Find Contributions Made to S Corporations

Form 7203: New IRS Form to Find Contributions Made to S Corporations 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 will be extremely helpful for your cash flow analysis […]

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 Individual Owner of an LLC Stop Receiving K-1s?

Why Would an Individual Owner of an LLC Stop Receiving K-1s? 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 […]

Other Increases or Decreases on a K-1

Other Increases or Decreases on a K-1 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 found a shareholder’s […]

What Can the Shareholder’s Basis Worksheet Tell You?

What Can the Shareholder’s Basis Worksheet Tell You? 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 […]

What are Sections M and N of the Partnership Schedule K-1?

What are Sections M and N of the Partnership Schedule K-1? 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 […]

Has the Cash Flow Analysis for Employee Business Expenses Changed Due to Tax Reform?

Has the Cash Flow Analysis for Employee Business Expenses Changed Due to Tax Reform? 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 […]