Personal Income Tax Returns and Cash Flow
Q: What about cash received by McPherson for the tax-exempt Interest, and the $1,001 in interest income received, and the dividend income of $875, and the capital gains income of $18,285? All considered actual cash received by McPherson?
A: This question came in after the reconciliation for cash versus taxable income from Sandover Contractors which did not include these amounts as none of them flowed from Sandover Contractors. All these amounts are included in the complete cash revenue calculations for McPherson of $757,066 displayed on Slide 55.
The $5,100 of tax- exempt interest income is cash income to McPherson. He received it directly from personal investments. It was not passed to him from either Sandover Contractors or from Greater Pacific Realty Partners.
The $1,001 in interest income from Coast Savings is cash income received directly by McPherson. It was not passed to him by either of his companies.
The $875 of dividend income is cash income to McPherson received directly from Coast Savings, General Electric, and Walmart. It was not passed to him by either of his companies.
The capital gains of $18,285 is cash to McPherson received directly by him upon his sale of equities in that amount. It was not passed to him by either of his companies.
Q: Why the difference of $345,245 and $338,438 from the Subchapter S corporation?
A: $345,245 is the sum of $251,575 of distributions from Sandover, $86,863 of loan repayments from Sandover Contractors to McPherson, and $6,807 of new loans to Shareholder (McPherson).
The $338,438 amount is the sum of distributions and loan repayments only, i.e., $251,575 and $86,863.
Q: Where did you find the loan of $6,000+?
A: The $6,807 of new loans comes from calculating the change in the Due from Stockholder account on the Sandover Contractors' balance sheet that was included in the Accrual Financial Statements provided in materials. It is not recorded on the business or personal income tax returns. The amount in the account increased by $6,807 – a cash outflow for the company and a cash inflow to McPherson.
Q: If living expenses are not provided, how do you calculate them?
A: There's really no common reference point, such as RMA statement studies or something similar, to estimate personal living expenses. The best source of information is the guarantor and your knowledge of him or her. As a general point of reference, today's personal savings rate is roughly 10% of disposable income, which means that 90% is spent. But the spending level will vary greatly by individual, which is largely dictated by lifestyle preferences.
Course overview: Personal Income Tax Returns and Cash Flow