Are Form 1120 C Excess 2023-2024

Passive investment income tax applies to S corporations that used to be C corps and still have C Corp accumulated earnings and profits on their books. Here's the formula for passive investment income tax, a little bit complicated: my gross passive investment income to the extent that it exceeds 25 percent of my total gross receipts, divided by gross passive investment income, times net passive investment income. If I said passive investment income enough, it equals my excess net passive investment income. No PII is passive investment income. Here are some numbers to hopefully clear this up: the company had $100,000 in total gross receipts, of which $60,000 is passive and $40,000 is non-passive. I also have passive expenses, Pat, to offset this passive income in the amount of $10,000. Net PII is $50,000. Plugging in the numbers: $60,000 (gross PII) - 25 percent of my total gross receipts ($100,000) divided by $60,000, times $50,000, equals $2,500. To the extent that exceeds 25% of total gross receipts, the result of this computation is $35,000, divided by $60,000, times the net passive income ($50,000), which equals $2,500. That $2,500 is subject to tax at the maximum C Corp rate, which is 35%. So, here's my $2,500 times 35%. The corporation is going to pay $875 in tax on this excess passive investment income. The big problem with passive investment income is that if the companies are subject to this tax for three consecutive years, they're gonna lose their S status effective day one of the fourth year.