Brian's question: What does it mean when the k-1 income/loss is listed as 'passive' instead of 'non-passive'? The post Passive vs Non-passive K-1 Income/loss: Confusion reigns! appeared first on Linda Keith CPA ..read more

Desi's question: Can passive &/or non-passive losses on the 1040 tax return be added back to borrower/guarantor cash flow for global analysis? I am having trouble finding a definitive answer to this question. Linda says: There is a reason you are not finding an answer to your question. It is not whether something is passive or non passive that determines if it can be added back to cashflow. It is whether it represents significant, continuing source of (or depletion of) cashflow. The post Passive vs NonPassive Losses: What is a lender to do? appeared first on Linda Keith CPA ..read more

Your question: Can I use the 'Self-employment earnings (loss)' on Line 14 (A) of the 1065 K-1 as cash flow? The post Self-employment earnings from 1065 K-1 appeared first on Linda Keith CPA ..read more

Craig's question: Can you provide detailed information to explain every box on the k-1? Linda says: Yes, but you actually do not need to know about every box. Much of what is on either the 1120S K-1 or the 1065 K-1 is just not relevant to lenders. These items are needed by the tax preparer for calculations. Here is the short list for lenders. The post Must go faster! So many K-1 numbers, so little time… appeared first on Linda Keith CPA ..read more

Your question: How long can a business show a loss? Aren't there some rules about hobby losses? Linda says: You have seen it...a business that really looks like a hobby, or a tax dodge. When is a business really a business even if running losses? And can we ever safely ignore a business loss? The post Hobby or a Tax Dodge? What lenders need to know before they make the loan appeared first on Linda Keith CPA ..read more

Pam's question: Unlike the 1065 K-1 for partnerships and LLC's, I find that many 1120S K-1's do not include the shareholder's equity which reports contributions and distributions with the shareholder. Distributions are reported on another line, but contributions from the shareholder to the company are not reported. I request the Shareholder Basis Worksheet, but many borrowers are unfamiliar with this worksheet. Do you have any advice on how to obtain the contribution information for an S Corp?. Linda says: Pam, you have discovered one of several differences between 1065 K-1s and 1120S K-1s. Th ..read more

Donald Asks I recently reviewed a personal tax return where the individual reported a large capital gain from an asset sale. The individual historically reports capital gains, but not as large and not under Form 4797. Since it’s non-recurring it wasn’t included in cash flow. If however, it were recurring how should it be treated? […] The post Capital Gains are pass-thru. Count them or not? appeared first on Linda Keith CPA ..read more

Drew Asks: I have a question in regards to adding back home mortgage interest paid to personal cash flow (Schedule A – line 8a of 2019 1040). A few years ago, I attended a class that covered how to calculate personal cash flow. The teacher stated that it was acceptable to include Home mortgage interest […] The post Home mortgage interest and other Schedule A nuggets appeared first on Linda Keith CPA ..read more

Tony Asks: I used distributions from owners’ equity as part of the cash available for personal debt service of the owners of a law firm. The firm had a large settlement 2 years ago which continues to be the source for wages and distributions. This firm consistently takes on multi-year cases and uses the big […] The post Can we use Distributions from Equity rather than from Earnings? appeared first on Linda Keith CPA ..read more

Fred Asks I have a customer who reports guaranteed payments on their 1040 Schedule E. However, the partnership tax return info indicates the customer does not have any partnership interest. All of the K-1s provided are for other individuals and add up to 100%. There is not a K-1 for the customer.  The 2019 Schedule […] The post Guaranteed Payments to Non-Owners appeared first on Linda Keith CPA ..read more