form 8881 for S-Corp

"in what case does line 7 have an amount? An example would be greatly perfect."

Did you read all of this specific article: https://erctoday.com/form-8881-pension-plan/

The SECURE Act encourages employers to establish, expand, and/or increase the participation and options for employer retirement plans, and that's what Form 8881 is for. There was an update and an expansion of that Act as well as new provisions. All of this is from 2019 and 2020.

There are specific examples and a lot of explanations in that article. That's why I included it. HR and benefit plan administration resources will give you details you don't find in tax prep material. That's because the service providers want to be hired by your small business clients. They are trying to drum up business.

"To calculate this credit, you need to determine what qualifies as startup costs. According to the IRS, eligible expenses include those related to:

• • Creating or setting up a qualifying retirement plan

• • Educating employees about the plan

• • Obtaining necessary legal advice

The amount of credit you can claim is 50% of these qualified costs, up to a maximum limit per year."

And:

"The max potential tax credit allowable is $500/yr for the initial 3 yrs of plan initiation. That means you could save up to $1,500 over three years by setting up an employee pension scheme."

And:

"Form 8881 can directly reduce the amount of tax owed by a business in a given year. The credit equals half of the cost paid or incurred in each of the three years beginning with the year the plan becomes effective, up to $500 per year.

So, if you spent $1000 setting up and administering your company’s new pension plan and educating your employees about it, you could claim a $500 tax credit using Form 8881."

And:

"Small businesses can claim administrative costs and costs to educate employees about the benefits and options as part of the tax credit."

And:

"The small employer auto-enrollment credit is available for application in section 45T and as a part of the general business credit.

The employer is eligible for $500 per eligible employee; that’s part of the eligible automatic contribution arrangement for each employee. The business can also qualify for the next two years for $500 per employee auto-enrolled as long as the plan remains in place."

"Code C on box 16 on K-1 has same amount of code P on box 13 of K-1! Am I right?"

Box 16 is items affecting basis. Box 13 is tax credits.

"Why this cost is nondeductible on K-1?"

Box 12 is deductions.

Something might be a deduction for the business, a credit for the business, a passed through deduction, a passed through credit, and/or an adjustment to basis. And of course, you need to know Fed and State treatment (compliance with the SECURE Act and the Consolidated Appropriations Act).

All of these are different means of tax treatment, and how it affects something else, and based on the reporting entity. "It’s important to note that when you’re working through Form 8881, the business must reduce your deduction for start-up costs by the credit amount on line 5."

Examples for individuals:

A person can have high medical expense, so they itemize to take that as a deduction on a schedule (worksheet). Or, a self-employed person can deduct their health coverage premium "off the top." But an employee of a major corporation might have health coverage at work, so that is nondeductible for them. It's three different ways that specific type of "cost" is treated in the tax code.

Perhaps you want to read up on General Business Credits (Form 3800)? We went through this for handling the ERC (which really is ERTC). There were preparers trying to put it onto business credit, pass through to the individual via K-1. But it was an adjustment to the expense (operations) and not a credit to pass through to the individuals. It was confusing because there was an older existing "retention credit" that had nothing to do with the covid-era retention tax credit.