review of s corp tax return presentation...review 1040 schedule 1 1120s corp with k1 11 review line...

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Tax Return Review -S Corp Income Form 1120S with K1Tax Return SeriesApril 2019

Objective

”Understand the meaning of “Self Employed‏ Learn to use Fannie Mae’s Form 1084 to calculate supportable‏income using tax returns. Complete Fannie Mae’s Cash Flow Analysis Form 1084‏

– W2– 1120S K1 Review (Section 9)– 1120S Review (Section 10)– Solvency/Liquidity Test

1120S Corp with K1

1120S Corp with K1

Tax Forms-

www.new.mi.Genworth.com

1120S Corp with K1

You’ll Need Calculators-

1120S Corp with K1

Fannie Mae’s 1084

1120S Corp with K1‏6

1120S Corp with K1

The Case Study…The Case Study Mark E Fitt

Mark is 100% owner is a 1120S Corp.

His reported taxable Income is a W2 & K1 from Life Fitt Equipment, Inc

1040

1120S Corp with K1

2018 W2

91120S Corp with K1

Is the borrower Self Employed?

Schedule 1?

101120S Corp with K1

Review 1040 Schedule 1


Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove the borrower is Self Employed. Sch. E may disclose K1’s from Partnerships, LLC’s, S-Corp’s and CMO’s… But it may be reported Rental Income.

Review Schedule E

12

Now you need to review the K1…1120S Corp with K1‏

1120S K-1


X X

SEB W2


2018

*

* Verify the ability to use the total taxable compensation

Form 1120S Corporate Return


S Corporation‏– Can be Owned by One Person – “Managing Shareholder” Must Receive a Salary – Business Income Reported on Form 1120S– Income Reported on Form 1040’s

• Schedule E• Could also be W-2 wages or 1099 income

– All Shareholders of an S Corp are Issued K-1’s – K-1s are Attached to the S Corp Tax Return (IRS Form 1120S)

Advantages‏– Taxed on Personal Basis

• S Corp pays No Tax on Income– Liability Limited to Amount Invested

Disadvantages‏– Limited to 100 Shareholders

1120S Corp with K1‏

1120S Corp

Line 21 Ordinary Income $_________

K1%


Schedule E page 2

Part II

Net Income $_______

1040

Line 17 Net Income Sch.E

*$_________

*Taxed at a personal rate

16

Check for Trends or Changes‏– Gross receipts – Cost of goods sold– Gross profit – Bottom line “Ordinary Income”– W-2 wages

• Were these paid to borrower?

17

S Corps

1120S Corp with K1


1120S Corp


K1%


Schedule E page 2

Part II

Net Income $_______

1040


*$_________


18

1120S K-1



1120S Corp


K1%


Schedule E page 2

Part II

Net Income $_______

1040Schedule 1


*$_________


20

Review 1040 Schedule 1


Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove the borrower is Self Employed. Sch. E may disclose K1’s from Partnerships, LLC’s, S-Corp’s and CMO’s… But it may be reported Rental Income.

Review Schedule E

22

Now you need to review the K1…1120S Corp with K1‏

Income Analysis Form 1084-Section 9

1120S Corp with K1

IF

As a Lender you must determine the Investors guidelines and use prudent underwriting analysis. We believe this method to be a best practice.

20182018

Analyzing K1’s & Business Returns


Fannie Mae 2019 Selling Guide B3-3.3-07, Income or Loss Reported on IRS Form 1065 or 1120S, Schedule K1 (06/28/2016)

Liquidity


Fannie Mae 2019 Selling Guide B3-3.3-07, Income or Loss Reported on IRS Form 1065 or 1120S, Schedule K1 (06/28/2016)

Fannie Mae Selling Guide


Less than 25% Ownership


Solvency and Liquidity

1120S Corp with K1‏ 28

Acid Test or Quick Ratio



Solvency

(Cash + Accounts Receivable) + Current Assets -Total Current Liabilities

{ {

Every Business Return will include a 2 Year Balance Sheet as Schedule L(unless total business assets are less than $1,000,000)

& Total receipts are less than $250,000

30

1120S Review for Solvency/Liquidity

The forth page of the 1120S Return is a Balance Sheet (Schedule L)


(Cash #1 + Acct Receivable #2 + #4+ #5 +Other Current Assets #6)(Acct Pay. #15 + MNB #16 + Other Current Liabilities #17)

Balance SheetQuick Ratio or Acid Test

Current Assets :Current Liabilities:


33

LiquidityGenerally Accepted Accounting Principles‏

1120S Corp with K1

Other Current Liabilities


Is the Credit Card balance due in full?

Is the Credit Line balance due in full?

Is the business loan due in full?



Now you need to review the 1120S…

Income Analysis Form 1084


Genworth Underwriting Guidelines


Genworth Rate Express®

1120S Corp with K1 47

LOS Connections



Training Tools and Information


Additional MI Site Information


ActionCenter®: 800 444.5664

Your Local Genworth Regional Underwriter

Your Genworth Sales Representative

Your Genworth Resources


Legal Disclaimer Genworth Mortgage Insurance is happy to provide you with these training materials. While we strive for‏accuracy, we also know that any discussion of laws and their application to particular facts is subject to individual interpretation, change, and other uncertainties. Our training is not intended as legal advice, and is not a substitute for advice of counsel. You should always check with your own legal advisors for interpretations of legal and compliance principles applicable to your business.

,GENWORTH EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED‏INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THESE MATERIALS AND THE RELATED TRAINING. IN NO EVENT SHALL GENWORTH BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER WITH RESPECT TO THE TRAINING AND THE MATERIALS.

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review of s corp tax return presentation...review 1040 schedule 1 1120s corp with k1 11 review line...

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