What is Excess passive investment income tax?
In short
An S corporation with earnings and profits from its C corporation years pays corporate-level tax, at 21%, on excess net passive income when its passive investment income is more than 25% of gross receipts.
Key takeaways
- Passive investment income includes royalties, rents, dividends, interest and annuities.
- Exceeding the 25% limit for three consecutive years ends the S election.
- Distributing the old earnings and profits removes the exposure.
Where it's tested
REG: S Corporation Taxation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Which of the following would immediately terminate a corporation's S election?