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Form 1120-S (Schedule K-1) for Orange California: What You Should Know
Corporation? U.S. Internal Revenue Code Section 1367, Corporations, allows S corporations to operate in the United States. An S corporation may be formed by the filing of Forms 1120-S and/or a Schedule K-1 or Section 1373. Form 1120-S is not required as the basis for the formation of an S corporation. Form 1120-S allows an S corporation to take part in the financial and business activities of another S corporation or individual with the same or different names but operated under a partnership name. Form 1120-S can be used by the corporation itself, by a person incorporated or organized in or under the laws of the United States or any state who owns 30% or more of the stock of the corporation, and another person with an interest of less than 30% of the stock of the corporation by reason of joint tenancy, tenancy by the entirety, or for-profit partnership. This is true whether the other person owns the shares of stock directly. The corporation may also use this form for the filing of an election to take a deduction on its tax return for the year from qualified business income for purposes other than the deduction described below. See the Instructions for Schedule K-1 for more information. However, to claim the deduction as a corporation, you must report the amount of itemized deductions described in section 263A as a deduction on Form 1120S. Qualified Business Income. If the corporation has gross business income of at least 500,000 and is organized for profit, then the corporation qualifies for the deduction. Your share of the qualified business income generally includes the following: Net profits of the corporation (in the case of a sole proprietorship, or partnership, or S corporation, the total amount of business income actually earned and recognized and in cash). Other business income of the corporation. Your fair market value of property received from a related person. A related person means a business related to the corporation to such an extent that the amount of income it earns from its trade, business or profession is attributable to the business of the related person. Related person includes a trust, estate, corporation, partnership or limited liability company, other legal entity, or person that controls the corporation. Qualified Business Interests.
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