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Discussion:Form 1125-E

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Discussion Forum Index --> Basic Tax Questions --> Form 1125-E


Discussion Forum Index --> Tax Questions --> Form 1125-E

FLAcct (talk|edits) said:

26 February 2014
I have just come upon my first 1125-E, Compensation of Officers. Pretty straight forward except for column (c) which asks for "Percent of time devoted to business". I haven't been able to find any explanation for this column. Do you think they mean if a person works 40 hours a week on average and there are 168 hours in a week, then 40/168 or 24% is what they're wanting here? Or if a person works 40 hours a week on average then 100% is what they're wanting here? How would you calculate this percentage?

Captcook (talk|edits) said:

26 February 2014
I've used an estimation. If it is their only job and they are full-time, I put 100%. If I know that's not the case, I ask them. It's their return after all.

Nilodop (talk|edits) said:

26 February 2014
Suppose officer has 2 (unrelated) jobs, and spends, say, 30 hours on each? Is the answer 100%? Or 120? Or 150 (75 + 75)? And suppose it is a consolidated return, and he is an officer of each company in the return? It could be 100 for each company in the return. It gets ridiculous. Put down a reasonably defensible number. We pretty much know why they are asking.

I never previously heard of this form. More reason why I'm glad to be retired.

Ckenefick (talk|edits) said:

26 February 2014
It's not new, it's been part of the 1120 forever. And, there's prior discussions on it.

FLAcct (talk|edits) said:

26 February 2014
It's new to the 1120S for 2013. I searched "1125-E" and nothing came up.

Ckenefick (talk|edits) said:

26 February 2014
Yeah, it's new to the 1120S, but it's been on the 1120 forever...same concept, same question.

Tax Me UP (talk|edits) said:

5 March 2014
Do you think there is any correlation between 1125-E for S-corp and the new 3.8% NII tax?

Ckenefick (talk|edits) said:

6 March 2014
Good thought, but I'd say no. More for the reasonable comp issue.

Tax Me UP (talk|edits) said:

6 March 2014
I have two S-Corps with same owners & officers in real estate business.

S-Corp 'A' is the operating company (i.e. does property mgmt and real estate sales). S-Corp 'B' owns pretty much all of the assets. A pays B rent for office space, vehicles, etc. A also pays B a management fee.

All of the SH / officers are paid wages via A. Yet I would like to show "time devoted to business" on both S-Corps' form 1125-e as 50%. This is concerning b/c SHs took distributions but no wages from B, and uncoincidentally, B shows much more profit than A.

I have considered showing time devoted to business as 0% on B, but I'm afraid I will then have a passive activity subject to 3.8.

Does anyone know if there is an election to group A & B as the same activity?

Thanks for any helpful input.

Natalie (talk|edits) said:

March 17, 2014
I'm just curious why you aren't basing the percentage on 168 hours/week.

Nilodop (talk|edits) said:

17 March 2014
More for the reasonable comp issue. Since this is why they want the info, and since there are no clear answers to what is the denominator when calculating % of time, why not just use the denominator that throws the most favorable light on the issue, and that is supportable. The Form 990 asks for "average hours per week", which is more certainly ascertained.

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