Tax Year 2021 - NEW IRS rule requires that all S-Corps prepare form 7203
Effecting the tax year 2021, the new IRS rule requires that all S-Corporations prepare form 7203 which is called the "S Corporation Shareholder Stock and Debt Basis Limitations"
It can be a lengthy and timely process, as they will be due by April 18th 2022.
Do not delay, and remember to file an extension if time is of essence.
What does it mean for you the taxpayer - you might have to pay extra for tax returns this year, unless you have the ability to complete them on your own for your tax accountant.
What does it mean for your tax preparer - they will need your prior year docs to make sure you have the correct data being reported as it is an ending balance brought forward beginning of each taxable year.
There are many tax softwares that have not been able to carry this form until just recently as of the first week of March 2022 - therefore if you have been speedy in preparing the annual tax returns, you will most likely have to amend or attach the paper copy of the form 7203 to your tax return to stay in compliance with the IRS requirements.
Issues with this form and why it could be lengthy process for your tax preparer which could cost more out of pocket: All have to do with your financials!
If you have proper financials for your S-Corp from day one, this process will likely be a little smooth sailing, but would still require an amount of work, as the cost basis would have to be correct from day one which is the beginning balance of your stock basis.
S-Corps that do not have an accounting software to generate annual any financials, this will most likely be a labor intensive project, as you would have to calculate and ensure all the corresponding year balances are correct, as they are forward reporting.
So, do the math, and make your own reporting and ensure this form get’s filed with your 1040 tax return if you are a stockholder of an S-Corp.
The Modern CFO Tax Tip:
Make sure on your S-Corp stock basis and partner contributions are correct as they will follow onto your 1120-S tax return.
Make sure the form 7203 corresponds to your S Corporation Shareholder Stock and Debt Basis Limitations
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I am Yasmine Belle - Your Tax Boss @the modern CFO Podcast
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