workhard2022
Level 4
Tuesday

Hello,

I am preparing a Form 7203 as part of an individual tax return. The taxpayer received a Schedule K-1 from an S corporation, and I want to confirm whether I may have missed any inputs, as Part III (Shareholder Allowable Loss and Deduction Items) of Form 7203 is showing as blank.

Here are the relevant details from the Schedule K-1:

  • Box 1 (Ordinary Business Income): $250,000

  • Box 13 (Credits): $5,000

  • Box 16:

    • Code D:$200,000

    • Code C (Other Nondeductible Expenses): $5,200, which includes:

      • $200 for meals

      • $5,000 for Form 8846 – Credit for Employer Taxes Paid on Tips

My question is: Should Part III of Form 7203 be blank for this K-1? I expected to see $5,138 in Column (a) of Part III, but ProConnect is not populating this number. Could you please help me understand whether this is correct or if I need to input something manually?

Thank you very much for your guidance!

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PhoebeRoberts
Level 11
Level 11
Wednesday

Why, and on which line, do you expect to see $5,138 (a number not obviously related to any of the numbers in your details)?

Nondeductible expense gets backed out of basis on Line 8a, unless you've elected to deduct losses before non-deductible expense, in which case it gets backed out of basis on Line 13. If you made that election, you should enter a 1 in the line of the Basis Limitation (7203) input, where it says "1=deduct losses before nondeductible expenses and depletion." 

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workhard2022
Level 4
Wednesday

Apologies for the typo. I meant to say $5200 (the actual amount is $5138; I used $5200 as a rounded figure for this question). I was expecting to see either $5200 (or the typo $5138) in Column A of Part III of Form 7203. I'm not sure which line this should appear on, but I thought it might be Line 45, "Other Deductions," as that seems the most relevant, though it's a bit unclear.

Thank you for your explanation. As of now, I have the $5200 (or typo $5138) listed on Line 8a (Non-deductible Expenses) in Part I of the Stock Basis section, where it reduces my stock basis by that amount. I did not make any special election related to Line 13, "Other Items That Decrease Stock Basis."

So, to confirm: the $5200 (or typo $5138) won't appear in Part III of Form 7203; it only shows up on Line 8a of Part I, correct?

Thanks again for your help!

Reply
PhoebeRoberts
Level 11
Level 11
Wednesday

Only items that are deductible end up as Other Deductions. Nondeductible expenses do not appear on Part III of Form 7203.

View solution in original post

Reply
George4Tacks
Level 15
Wednesday

Non deductible would be part of the basis computation. ProConnect does have a worksheet. https://accountants.intuit.com/support/en-us/help-article/form-1120/shareholder-basis-input-calculat...

 


Answers are easy. Questions are hard!
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workhard2022
Level 4
Wednesday

Thank you everyone for your help!  Have a great day!

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