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Video instructions and help with filling out and completing Why Form 5495 Limitation

Instructions and Help about Why Form 5495 Limitation

Hi, in this module, I'm discussing the limitations on the deduction of business interest. This is an area that has changed quite a bit for businesses. In the initial political talk, there was quite a bit of rhetoric about how we were going to lower the corporate tax rate but closed a lot of loopholes. Well, this is a very big loophole that they're attempting to close. Throughout this module, I'm going to start with corporations and then add a little bit about flow-through entities that applies to both partnerships and S corporations. Finally, I'll add some specifics that apply only to partnerships. So, this is a bit of a complex module and it's a good one to take notes on. Now, the corporate interest expense deduction is now much more limited than what it was in the past. The pre-2018 law says interest paid or accrued is generally deductible, but with some limitations in certain cases. These limitations are where interest is paid or accrued and is disallowed because the corporation is something called a thinly capitalized corporation. It's very thinly capitalized. You would see this where maybe somebody wanted to form a corporation, for example, and took a million dollars to do it. So, they sold themselves one share of stock at one dollar per share and then ran the corporation with 999,999 dollars. Well, of course, when you start looking at that, you say, "Oh, of course, you couldn't do that." Then the owner comes back and says, "Okay, I'll sell a share of stock for two dollars and then loan myself the rest at eight dollars." And there's some kind of bargaining as to what's reasonable. That reasonableness line has never really been clarified anywhere. It's flaws, I qualify through a small body of case law. But...