review of s corp tax return presentation...review 1040 schedule 1 1120s corp with k1 11 review line...
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Genworth Mortgage Insurance Corporation ©2019 Genworth Financial, Inc. All rights reserved.
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
1120S Corp with K111
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
1120S Corp with K113
X X
SEB W2
141120S Corp with K1
2018
*
* Verify the ability to use the total taxable compensation
Form 1120S Corporate Return
1120S Corp with K115
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%
Line 1 Ordinary Income $_________
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 with K1
1120S Corp
Line 21 Ordinary Income $_________
K1%
Line 1 Ordinary Income $_________
Schedule E page 2
Part II
Net Income $_______
1040
Line 17 Net Income Sch.E
*$_________
*Taxed at a personal rate
18
1120S K-1
1120S Corp with K119
1120S Corp with K1
1120S Corp
Line 21 Ordinary Income $_________
K1%
Line 1 Ordinary Income $_________
Schedule E page 2
Part II
Net Income $_______
1040Schedule 1
Line 17 Net Income Sch.E
*$_________
*Taxed at a personal rate
20
Review 1040 Schedule 1
1120S Corp with K121
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
241120S Corp with K1
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
251120S Corp with K1
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
261120S Corp with K1
Less than 25% Ownership
271120S Corp with K1
Solvency and Liquidity
1120S Corp with K1 28
Acid Test or Quick Ratio
291120S Corp with K1
1120S Corp with K1
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)
1120S Corp with K1
(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:
321120S Corp with K1
33
LiquidityGenerally Accepted Accounting Principles
1120S Corp with K1
Other Current Liabilities
341120S Corp with K1
Is the Credit Card balance due in full?
Is the Credit Line balance due in full?
Is the business loan due in full?
Income Analysis Form 1084-Section 9
1120S Corp with K1
1120S Corp with K1
Income Analysis Form 1084-Section 9
Now you need to review the 1120S…
Income Analysis Form 1084-Section 10
1120S Corp with K1
Income Analysis Form 1084-Section 10
1120S Corp with K1
Income Analysis Form 1084-Section 10
1120S Corp with K1
Income Analysis Form 1084-Section 10
1120S Corp with K1
Income Analysis Form 1084-Section 10
1120S Corp with K1
Income Analysis Form 1084-Section 10
1120S Corp with K1
Income Analysis Form 1084-Section 10
1120S Corp with K1
Income Analysis Form 1084-Section 10
1120S Corp with K1
Income Analysis Form 1084
1120S Corp with K1
Genworth Underwriting Guidelines
461120S Corp with K1
Genworth Rate Express®
1120S Corp with K1 47
LOS Connections
1120S Corp with K1 48
1120S Corp with K1 49
Training Tools and Information
Training Tools and Information
1120S Corp with K1 5050
511120S Corp with K1
Additional MI Site Information
521120S Corp with K1
ActionCenter®: 800 444.5664
Your Local Genworth Regional Underwriter
Your Genworth Sales Representative
Your Genworth Resources
531120S Corp with K1
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