form 8881 for S-Corp 1120-S

[Sam Hopi]

Hi, I have S-Corp and want to file 8881 I do not understand what line 6 and 7 say:

 7- Credit for small employer pension plan startup costs from partnerships and S corporations 
8 -Add lines 5, 6g, and 7. Partnerships and S corporations, report this amount on Schedule K. All others,
report this amount on Form 3800, Part III, line 1j 

I would like someone help me to figure out when line 7 has an amount and where it comes from? 

Also, the cost of set-up will be deducted from the retirement contribution on line 17 of 1120-S if so, do I add this cost to the amount of contribution?

Marry Christmas 

I am hoping someone can  help me!

[Anonymous_]

Merry Christmas.

I will page Champ @Rick19744 for this. Check back for a response later or tomorrow.

[Rick19744 · Accepted solution]

Merry Christmas.  Providing exceptional customer service never rests.  😎

This is a confusing and somewhat difficult form to complete.  

• Essentially you will need to complete lines 1 through 5.
• You need to read the actual form language to determine what to include in line 6
  • No highly compensated employee contributions
  • No contributions to employees that exceeded $1,000
  • I would imagine in most cases, line 6 is zero and this will carry down to line 6g
• Line 7 is most likely zero as well since this would be amounts that are coming from an S corp or partnership; which I doubt is applicable to you
• At the end of the day, in running my simple hypothetical, with $5,000 on line 5 (40 employees), I also end up with $5,000 on line 8; since any contribution exceeded the $1,000 to my hypothetical employees.
• This amount then carries to the Schedule K, then the K-1 Box 13 code P; using the 2022 K-1 instructions since the 2023 instructions have not been released, however, I doubt they change for this issue.
  • You will need to make sure that you add a good description so the recipient of the K-1 knows what the credit is so they can input it correctly for their tax return.
• Finally, remember you need to reduce your expense for any of the pension start-up costs by the amount of the credit; can't take both the full deduction AND the credit.
• Now back to polishing that new Lamborghini my wife gave me.

[Sam Hopi]

Hope you enjoy Lamborghini and thanks for your response. 

As you said :  Line 7 is most likely zero as well since this would be amounts that are coming from an S Corp or partnership; this is my main question.

My tax form is 1120-S and should file 8881, but this line says :   Credit for small employer pension plan startup costs from partnerships and S corporations.

I want to file S-Corp, 1120-S, and line 1 to 5 are about this credit for my S-Corp, so what is line 7 then?

Who knows what is this and when and how or in what case does it have an amount? An example would be greatly perfect.

And I see code C on box 16 on K-1 has same amount of code P on box 13 of K-1! Am I right? Is this as nondeductible Code C ( The nondeductible expenses paid or incurred by the corporation aren't deductible on your tax return. Generally, you must decrease the basis of your stock by this amount)

Why this cost is nondeductible on K-1?

[Anonymous_]

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@Sam Hopi wrote:

.....so what is line 7 then?

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In the instructions:

Qualified startup costs. Qualified startup costs are expenses paid or incurred in connection with (a) establishing or administering an eligible employer plan, or (b) the retirement related education of employees about the plan.

[Anonymous_]

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@Sam Hopi wrote:

And I see code C on box 16 on K-1 has same amount of code P on box 13 of K-1........

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https://www.irs.gov/pub/irs-pdf/i1120ssk.pdf

Most credits identified by code P will be reported on Form 3800, Part III

[Rick19744]

@Sam Hopi Line 7 would be if the filing entity received amounts from another S corp or partnership.

This is not applicable to you as you are filing the form 8881 for this specific S corp.

[Sam Hopi]

 I think you do not read the question, just you have most of the time an adjective reply.

[Sam Hopi]

Very good, may have an example when an S-Corp can get this credit from the other S-Corp here. All S-corps Should carry this credit on Sch K and K-1 not here !? confusing for me.

How about box 16 code C ? Do you have any view?

[Rick19744]

@Sam Hopi 

• Each of your questions has been specifically addressed.
• If you are struggling, then you need to see a tax professional where you can have a one on one.
• Simple summary:
  • Line 7 does not apply to your facts; leave it blank.  No I'm not providing any more explanation than has already been provided previously.
  • The amount from form 8881 goes on Schedule K line 13g with a code P
  • This should then carry to the K-1 line 13 as well, also with a code P
• These forums aren't a classroom where you can have dialog back and forth with question after question.
• You have asked the question(s), direction has been provided, follow the directions and you should be good to go.  If you need more understanding, meet with a tax professional; which I highly recommend since you are struggling with this matter.
• Is this your final answer...........yes, this is my final answer.

[Sam Hopi]

Thanks Rick Sorry about that, but you did not provide all my answer. 

I asked this question: How about box 16 code C? Should be this box affected by this credit? 

If all S-Corp's credit goes on Sch K and K-1 what is line 7 then? You just said is not for my S-Corp!!

[Izzyabster]

Hello!

Clarification - on the 1120 S return Business Software - on form 8881 it is picking up the Part 1 Credit from line 5 (the start up costs) and reporting as a nondeductible expense (therefore reducing the actual expense - as it should) - however it is not picking up the credit for the employer contributions made and offsetting the expense 

On line 5 I have $950 for start up expense credit and it appears to be correctly reporting, but another $2258 in employer contributions that is giving me the credit on the K1 of $3208 but there isn't an book/tax offset for the $2258 in employer contribution credits.

Is this a turbo tax error in the software or is this correct?

[CatinaT1]

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[Izzyabster]

Yes - the software is still calculating the same way - I ran updates and even made a "fake" company to try to replicate.  Is this correct?