I have a client with a K1 from a s-corp with negative interest income in box four of the K1. I don't understand how interest income can be negative. Is there ever a reason this could occur? What would the reason be? Tax works ignores the negatve entry and does not produce a diagnostic alert.
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Interest paid?
Maybe they paid interest and it was entered wrong on the K1. It must be something in the accounting process generating that figure. Can you reach the preparer of the K1?"I am proud to pay taxes in the United States. The only thing is I could be just as proud for half the money." Arthur Godfrey -
Have never seen a negative interest figure on a K-1.Comment
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that's what I mean...
I believe it is an error in the accounting. But will it fly on the tax return?"I am proud to pay taxes in the United States. The only thing is I could be just as proud for half the money." Arthur GodfreyComment
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I've had negative dividends... Let me see if I get this right. When an investor holds a short posistion or is it an option?? and the company issues a dividend, the investor has to pay the dividend, causing a negative dividend in the investors hands.
In the end it is a basis adjustment, not a negative dividend even though it was a dividend issue.Last edited by BOB W; 03-29-2010, 08:01 AM.This post is for discussion purposes only and should be verified with other sources before actual use.
Many times I post additional info on the post, Click on "message board" for updated content.Comment
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Overaccrued
This can happen, particularly if the corporation has accrued interest on a loan that gets paid off. Sometimes it is revealed that the too much interest was allowed for in their accrual accounting. This would be proper, even though it does reveal an error in estimate for previous years. Errors in estimates do not always necessitate an amended return for the entity, in fact, they occur regularly in accrual accounting.
There is, however, the possibility that even this situation may be improper. Because if there are very few shareholders, there are restrictions on accruing interest as a deduction in a year that it is not taxable by the shareholders.
You would have to get permission to contact the preparer of the entity's K-1 to get to the bottom of it. Absent any other information, if you believe there is truth to this "negative" interest expense you could simply claim this as "other income" on line 21 and designate it as a repayment of a previously deducted expense. I wouldn't try to trip up your software on this.Comment
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