Instructions for Form N-35 - S Corporation Income Tax Return 2018

ADVERTISEMENT
2018
STATE OF HAWAII—DEPARTMENT OF TAXATION
INSTRUCTIONS FOR FORM N-35
(REV. 2018)
HAWAII INCOME TAX RETURN FOR AN S CORPORATION
(Section references are to the Internal Revenue Code (IRC) unless otherwise specified.)
(NOTE: References to “married” and “unmarried” are also references to “in a civil union” and “not in a civil union,” respectively.)
ATTENTION:
fied production costs by a certified public ac-
Return. An S corporation cannot be included as
countant. This act applies to taxable years
part of a unitary group with C corporations. The S
Hawaii has not adopted the increased ex-
beginning after December 31, 2018.
corporation must file a separate Form N-35.
pensing deduction under section 179 (Hawaii
General Instructions
Termination of Election
limit is $25,000) or the “bonus” depreciation
provisions.
An S corporation’s status as such shall re-
Caution: The attachment of a copy of a fed-
main in effect for Hawaii income tax purposes as
Hawaii has not adopted the domestic ac-
eral S Corporation return, Form 1120S, is not ac-
long as the corporation’s federal election remains
tivities production deduction under section
ceptable as a substitute for fully completing the
effective. If the corporation’s federal election is
199.
Hawaii S Corporation return, Form N-35.
terminated, the corporation’s S status for Hawaii
Where To Get Tax Forms
A valid S corporation election for federal pur-
purposes is also terminated.
poses is automatically effective for Hawaii in-
Hawaii tax forms, instructions, and schedules
Six-Month Automatic Extension of
come purposes without a separate election.
may be obtained at any taxation district office or
Time to File Corporate Return
An S corporation having income attributable
from the Department of Taxation’s website at tax.
to sources both within the State of Hawaii and
Section 18-235-98, Hawaii Administrative
hawaii.gov, or you may contact a customer ser-
outside the State must attribute that income
Rules, allows an automatic six-month extension
vice representative at: 808-587-4242 or 1-800-
according to source for shareholder reporting.
of time to file a return without filing an application
222-3229 (Toll-Free).
for extension. This does not include an extension
S corporations having nonresident sharehold-
Changes You Should Note
of time to pay. Use Form N-301, Corporation,
ers are required to obtain from each nonresi-
Partnership, Trust, or REMIC Income Tax Exten-
dent shareholder, and file with the Depart-
Act 27, Session Laws of Hawaii (SLH) 2018 –
sion Payment Voucher, to make a payment (if
ment of Taxation (Department), an agreement
This act amends Hawaii income tax law under
applicable). File Form N-301 by the regular due
(Schedule NS) that the shareholder will file a
chapter 235, Hawaii Revised Statutes (HRS),
date of the S corporation return. Form N-301 can
Hawaii return and make timely payment of
to conform to certain provisions of the Internal
be filed and payment made electronically through
all taxes imposed with respect to the share-
Revenue Code, as amended as of February
the State’s Internet portal. For more information,
holder’s share of the S corporation’s Hawaii
9, 2018.
go to tax.hawaii.gov/eservices/.
income. Also, the shareholder will be subject
Act 87, SLH 2018 – This act extends the time in
to personal jurisdiction in the State for pur-
Federal Form 7004, Application for Automatic
which the Department of Agriculture may cer-
poses of the collection of unpaid income tax,
Extension of Time To File Certain Business In-
tify the Important Agricultural Lands Qualified
penalties, and interest. If the corporation fails
come Tax, Information, and Other Returns, may
Agricultural Cost Tax Credit through the 2021
to timely file these agreements on behalf of its
not be used in lieu of Form N-301. Such auto-
taxable year.
nonresident shareholders, the corporation is
matic extension does not extend the time for pay-
Act 122, SLH 2018 – This act amends section
required to pay to the State, on behalf of each
ment of the tax. The corporation’s automatic ex-
235-68, HRS, by changing the HARPTA with-
shareholder for whom an agreement has not
tension does not affect the due date for the filing
holding rate from 5 percent to 7.25 percent.
been timely filed, an amount equal to the high-
of the shareholders’ returns. The shareholders
The change will apply to all real property dis-
est marginal tax rate on individuals (presently
must apply for their own extensions, if needed. If
positions that occur on or after September 15,
11%) multiplied by the shareholder’s pro rata
a composite return is to be filed on behalf of non-
2018.
share of the income attributable to the State.
resident shareholders, an extension must be ob-
Act 133, SLH 2018 – This act amends the Cess-
Any payments made will be considered to be
tained for this return if the return cannot be filed
pool Upgrade, Conversion, or Connection
a payment by the shareholder on account of
by the due date of the composite return.
Income Tax Credit pilot program by repealing
the income tax imposed on the shareholder
Period to be Covered by 2018 Return
the provision that restricts the Department
for the taxable period. These agreements are
of Health from certifying more than two resi-
to be filed with the S corporation’s annual tax
File the 2018 return for calendar year 2018
dential large capacity cesspools as qualified
return.
and fiscal years beginning in 2018 and ending in
cesspools.
2019. If the return is for a fiscal year, fill in the tax
S corporations having nonresident share-
year spaces on the form.
Act 143, SLH 2018 – This act expands the Re-
holders may file composite returns and make
newable Fuels Production Tax Credit cap by
composite payments on behalf of some or all
Note: Form N-35 for 2018 may also be used
lowering the production threshold to two bil-
of their nonresident shareholders.
if: (1) the corporation has a tax year of less than
lion five-hundred million British thermal units
12 months that begins and ends in 2018 and (2)
Purpose of Form
of renewable fuels per calendar year and ex-
the 2019 Form N-35 is not available by the time
Form N-35 is used to report the income, de-
pands the types of renewable fuel eligible for
the corporation is required to file its return. How-
ductions, gains, losses, etc., of an S corporation
the credit to include logs, wood chips, wood
ever, the corporation must show its 2019 tax year
doing business in Hawaii. Do not file Form N-35
pellets, or wood bark. Applies to taxable years
on the 2018 Form N-35 and incorporate any tax
until the corporation has been notified by the In-
after December 31, 2017.
law changes that are effective for tax years begin-
ternal Revenue Service (IRS) that the corpora-
ning after December 31, 2018.
Act 142, SLH 2017 — This act amends the cer-
tion’s election to be treated as an S corporation
tification process for the Renewable Fuels
Final Return
has been accepted. If the corporation’s election
Production Tax Credit by requiring the tax-
is not in effect for the tax year, use Form N-30,
If the corporation ceases to exist, check box
payer to complete and file an independent,
do not use Form N-35. Unless requested by the
(2) “FINAL RETURN” near the top of the form.
third-party-certified statement with the De-
Department, it is not necessary to submit a copy
Also check box B(1) on each Schedule K-1 to in-
partment of Business, Economic Develop-
of the corporation’s accepted federal Form 2553,
dicate that it is a final Schedule K-1.
ment, and Tourism (DBEDT) for taxable years
Election by a Small Business Corporation.
beginning after December 31, 2017.
Amended Return
Act 143, SLH 2017 – This act amends the quali-
Who Must File Form N-35
To correct an error in a Form N-35 already
fications a production must meet in order to
A corporation must file Form N-35 if it has
filed, file an amended Form N-35, using the
claim the Motion Picture, Digital Media,
elected, by filing federal Form 2553, to be treated
form for the year being amended, and check
and Film Production Income Tax Credit.
as an S corporation for federal purposes, the IRS
the “AMENDED Return” box at the top of the
This act also caps the amount of tax credit
has accepted the election, and the election re-
form. Schedule AMD, Explanation of Changes
that may be claimed at $35,000,000 per year,
mains in effect. S corporations which are finan-
on Amended Return, must be attached to the
extends the sunset date to January 1, 2026,
cial corporations subject to tax under chapter
amended Form N-35. Also, attach all schedules,
and requires film productions claiming the tax
241, Hawaii Revised Statutes (HRS), may not file
forms, and attachments required to file a com-
credit to obtain a verification review of quali-
Form N-35, but must file Form F-1, Franchise Tax
FORM N-35
2018
STATE OF HAWAII—DEPARTMENT OF TAXATION
INSTRUCTIONS FOR FORM N-35
(REV. 2018)
HAWAII INCOME TAX RETURN FOR AN S CORPORATION
(Section references are to the Internal Revenue Code (IRC) unless otherwise specified.)
(NOTE: References to “married” and “unmarried” are also references to “in a civil union” and “not in a civil union,” respectively.)
ATTENTION:
fied production costs by a certified public ac-
Return. An S corporation cannot be included as
countant. This act applies to taxable years
part of a unitary group with C corporations. The S
Hawaii has not adopted the increased ex-
beginning after December 31, 2018.
corporation must file a separate Form N-35.
pensing deduction under section 179 (Hawaii
General Instructions
Termination of Election
limit is $25,000) or the “bonus” depreciation
provisions.
An S corporation’s status as such shall re-
Caution: The attachment of a copy of a fed-
main in effect for Hawaii income tax purposes as
Hawaii has not adopted the domestic ac-
eral S Corporation return, Form 1120S, is not ac-
long as the corporation’s federal election remains
tivities production deduction under section
ceptable as a substitute for fully completing the
effective. If the corporation’s federal election is
199.
Hawaii S Corporation return, Form N-35.
terminated, the corporation’s S status for Hawaii
Where To Get Tax Forms
A valid S corporation election for federal pur-
purposes is also terminated.
poses is automatically effective for Hawaii in-
Hawaii tax forms, instructions, and schedules
Six-Month Automatic Extension of
come purposes without a separate election.
may be obtained at any taxation district office or
Time to File Corporate Return
An S corporation having income attributable
from the Department of Taxation’s website at tax.
to sources both within the State of Hawaii and
Section 18-235-98, Hawaii Administrative
hawaii.gov, or you may contact a customer ser-
outside the State must attribute that income
Rules, allows an automatic six-month extension
vice representative at: 808-587-4242 or 1-800-
according to source for shareholder reporting.
of time to file a return without filing an application
222-3229 (Toll-Free).
for extension. This does not include an extension
S corporations having nonresident sharehold-
Changes You Should Note
of time to pay. Use Form N-301, Corporation,
ers are required to obtain from each nonresi-
Partnership, Trust, or REMIC Income Tax Exten-
dent shareholder, and file with the Depart-
Act 27, Session Laws of Hawaii (SLH) 2018 –
sion Payment Voucher, to make a payment (if
ment of Taxation (Department), an agreement
This act amends Hawaii income tax law under
applicable). File Form N-301 by the regular due
(Schedule NS) that the shareholder will file a
chapter 235, Hawaii Revised Statutes (HRS),
date of the S corporation return. Form N-301 can
Hawaii return and make timely payment of
to conform to certain provisions of the Internal
be filed and payment made electronically through
all taxes imposed with respect to the share-
Revenue Code, as amended as of February
the State’s Internet portal. For more information,
holder’s share of the S corporation’s Hawaii
9, 2018.
go to tax.hawaii.gov/eservices/.
income. Also, the shareholder will be subject
Act 87, SLH 2018 – This act extends the time in
to personal jurisdiction in the State for pur-
Federal Form 7004, Application for Automatic
which the Department of Agriculture may cer-
poses of the collection of unpaid income tax,
Extension of Time To File Certain Business In-
tify the Important Agricultural Lands Qualified
penalties, and interest. If the corporation fails
come Tax, Information, and Other Returns, may
Agricultural Cost Tax Credit through the 2021
to timely file these agreements on behalf of its
not be used in lieu of Form N-301. Such auto-
taxable year.
nonresident shareholders, the corporation is
matic extension does not extend the time for pay-
Act 122, SLH 2018 – This act amends section
required to pay to the State, on behalf of each
ment of the tax. The corporation’s automatic ex-
235-68, HRS, by changing the HARPTA with-
shareholder for whom an agreement has not
tension does not affect the due date for the filing
holding rate from 5 percent to 7.25 percent.
been timely filed, an amount equal to the high-
of the shareholders’ returns. The shareholders
The change will apply to all real property dis-
est marginal tax rate on individuals (presently
must apply for their own extensions, if needed. If
positions that occur on or after September 15,
11%) multiplied by the shareholder’s pro rata
a composite return is to be filed on behalf of non-
2018.
share of the income attributable to the State.
resident shareholders, an extension must be ob-
Act 133, SLH 2018 – This act amends the Cess-
Any payments made will be considered to be
tained for this return if the return cannot be filed
pool Upgrade, Conversion, or Connection
a payment by the shareholder on account of
by the due date of the composite return.
Income Tax Credit pilot program by repealing
the income tax imposed on the shareholder
Period to be Covered by 2018 Return
the provision that restricts the Department
for the taxable period. These agreements are
of Health from certifying more than two resi-
to be filed with the S corporation’s annual tax
File the 2018 return for calendar year 2018
dential large capacity cesspools as qualified
return.
and fiscal years beginning in 2018 and ending in
cesspools.
2019. If the return is for a fiscal year, fill in the tax
S corporations having nonresident share-
year spaces on the form.
Act 143, SLH 2018 – This act expands the Re-
holders may file composite returns and make
newable Fuels Production Tax Credit cap by
composite payments on behalf of some or all
Note: Form N-35 for 2018 may also be used
lowering the production threshold to two bil-
of their nonresident shareholders.
if: (1) the corporation has a tax year of less than
lion five-hundred million British thermal units
12 months that begins and ends in 2018 and (2)
Purpose of Form
of renewable fuels per calendar year and ex-
the 2019 Form N-35 is not available by the time
Form N-35 is used to report the income, de-
pands the types of renewable fuel eligible for
the corporation is required to file its return. How-
ductions, gains, losses, etc., of an S corporation
the credit to include logs, wood chips, wood
ever, the corporation must show its 2019 tax year
doing business in Hawaii. Do not file Form N-35
pellets, or wood bark. Applies to taxable years
on the 2018 Form N-35 and incorporate any tax
until the corporation has been notified by the In-
after December 31, 2017.
law changes that are effective for tax years begin-
ternal Revenue Service (IRS) that the corpora-
ning after December 31, 2018.
Act 142, SLH 2017 — This act amends the cer-
tion’s election to be treated as an S corporation
tification process for the Renewable Fuels
Final Return
has been accepted. If the corporation’s election
Production Tax Credit by requiring the tax-
is not in effect for the tax year, use Form N-30,
If the corporation ceases to exist, check box
payer to complete and file an independent,
do not use Form N-35. Unless requested by the
(2) “FINAL RETURN” near the top of the form.
third-party-certified statement with the De-
Department, it is not necessary to submit a copy
Also check box B(1) on each Schedule K-1 to in-
partment of Business, Economic Develop-
of the corporation’s accepted federal Form 2553,
dicate that it is a final Schedule K-1.
ment, and Tourism (DBEDT) for taxable years
Election by a Small Business Corporation.
beginning after December 31, 2017.
Amended Return
Act 143, SLH 2017 – This act amends the quali-
Who Must File Form N-35
To correct an error in a Form N-35 already
fications a production must meet in order to
A corporation must file Form N-35 if it has
filed, file an amended Form N-35, using the
claim the Motion Picture, Digital Media,
elected, by filing federal Form 2553, to be treated
form for the year being amended, and check
and Film Production Income Tax Credit.
as an S corporation for federal purposes, the IRS
the “AMENDED Return” box at the top of the
This act also caps the amount of tax credit
has accepted the election, and the election re-
form. Schedule AMD, Explanation of Changes
that may be claimed at $35,000,000 per year,
mains in effect. S corporations which are finan-
on Amended Return, must be attached to the
extends the sunset date to January 1, 2026,
cial corporations subject to tax under chapter
amended Form N-35. Also, attach all schedules,
and requires film productions claiming the tax
241, Hawaii Revised Statutes (HRS), may not file
forms, and attachments required to file a com-
credit to obtain a verification review of quali-
Form N-35, but must file Form F-1, Franchise Tax
FORM N-35
Rounding Off to Whole Dollars
plete return. If the amended return results in a
ered (the U.S. Postal Service is not permitted to
change to income, or a change in the distribution
forward your State refund check), and delay im-
The Department is requiring taxpayers to
of any income or other information provided to
portant notices or correspondence to you regard-
round off cents to the nearest whole dollar for all
shareholders, an amended Schedule K-1 (Form
ing your return. To notify the Department of your
dollar entries on the tax return and schedules.
N-35) must also be filed with the amended Form
new address, you can also complete Form ITPS-
To do so, drop amounts under 50 cents and in-
N-35 and given to each shareholder. Check box
COA, Change of Address Form, or log in to your
crease amounts from 50 to 99 cents to the next
B(2), to indicate that it is an amended Schedule
Hawaii Tax Online account at hitax.hawaii.gov.
dollar. For example: $1.39 becomes $1 and $2.69
K-1.
becomes $3. If you have to add two or more
Designation of Tax Matters Person
Change in Federal Taxable Income
amounts to figure the amount to enter on a line,
(TMP)
schedule, or worksheet, you may choose to use
In general, a change to your federal return,
An S corporation may designate a share-
one of two methods. Once a method of rounding
whether it is made by you, or by the IRS, must be
holder as the TMP for the tax year for which the
is established, you must use the same method
reported to the State of Hawaii.
return is filed by completing the Designation of
throughout the return. The first method is to in-
1) Section 235-101(b), HRS, requires a report (an
Tax Matters Person section at the bottom of page
clude the cents when adding and round off only
amended return) to the Director of Taxation if
4 of the return.
the total. The other method is to round off each
the amount of IRC taxable income is changed,
entry. For example: You received two 1099-INT
When to File and Where to File
corrected, adjusted or recomputed as stated
forms, one showing interest of $50.55 and one
in (3).
Returns must be filed on or before the 20th
showing interest of $185.73. For rounding meth-
day of the fourth month following the close of
2) This report must be made:
od 1, show your total interest as $236 ($50.55 +
the taxable year. If this date falls on a Saturday,
$185.73 = $236.28 rounded to $236). For round-
a) Within 90 days after a change, correction,
Sunday, or holiday, the due date for the return is
ing method 2, show your total interest as $237
adjustment or recomputation is finally de-
extended to the next business day.
($50.55 rounded to $51 + $185.73 rounded to
termined.
If you are enclosing a check or money order
$186 = $51 + $186 = $237).
b) Within 90 days after a federal amended
with your tax return, mail your return with pay-
return is filed.
Change in Accounting Period
ment to the Hawaii Department of Taxation, P.O.
c) At the time of filing the next income tax re-
Box 1530, Honolulu, HI 96806-1530. If you are
To change an accounting period, see IRC
turn, if earlier than set forth in a) or b).
not enclosing a payment with your tax return,
Regulations section 1.442-1 and federal Form
mail your return to the Hawaii Department of Tax-
1128, Application to Adopt, Change, or Retain a
3) A report within the time set out in (2) is
ation, P.O. Box 3559, Honolulu, HI 96811-3559.
Tax Year.
required if:
Note: Under Hawaii Tax Law, certain tax
a) The amount of taxable income as returned
Paying the Tax
credits must be claimed within 12 months
to the United States is changed, correct-
The corporation must pay the tax due (line
from the close of the tax year.
ed, or adjusted by an officer of the United
27, page 2) in full on or before the 20th day of
States or other competent authority.
If you are filing your return after the prescribed
the fourth month after the end of the tax year.
due date, the refund shown may be limited or dis-
b) A change in taxable income results from a
Amounts due on any Forms N-4 attached to the
allowed due to the statute of limitations. In gen-
renegotiation of a contract with the United
S corporation’s return (line 22c, page 2) are also
eral, a claim for refund or credit for overpaid in-
States or a subcontract thereunder.
due at this time. As a reminder, extensions al-
come taxes must be filed within three years after
lowed for filing a return do NOT extend the time
c) A recomputation of the income tax im-
the return is filed for the taxable year, within three
for paying the tax due on the return. If the corpo-
posed by the United States under the
years of the due date for filing the return, or within
ration cannot pay the full amount that is owed,
Internal Revenue Code results from any
two years from when the tax is paid, whichever
you can ask to enter into a payment agreement
cause.
is later. For purposes of determining whether a
once you receive a billing notice for the balance
refund or credit is allowed, taxes paid on or be-
d) An amended income tax return is made to
due. Please be aware that penalty and interest
fore the due date of the return (e.g. taxes with-
the United States.
continue to accrue on the unpaid tax amount
held from an employee’s pay, or estimated tax
4) The report referred to above shall be in the
even though you have not yet received a billing
payments) are considered paid on the due date
form of an amended Hawaii income tax return.
notice. Payments will be accepted and applied to
of the return, without considering an extension of
5) The statutory period for the assessment of any
the corporation’s tax liability; however, to ensure
time to file the return.
deficiency or the determination of any refund
that the corporation’s payments are applied cor-
Hawaii has adopted the IRC provision to al-
attributable to the report shall not expire
rectly, your check or money order must have: (1)
low documents and payments delivered by a
before the expiration of one year from the date
the corporation’s name as shown on the return
designated private delivery service to qualify for
the Department is notified by the taxpayer or
clearly printed on the check, (2) the corporation’s
the “timely mailing treated as timely filing/paying
the IRS, whichever is earlier, of such a report
federal employer identification number (FEIN),
rule.” The Department will conform to the IRS
in writing. Before the expiration of this one-
and (3) the tax year and form number being filed
listing of designated private delivery service and
year period, the Department and the taxpayer
(e.g., 2018 N-35).
type of delivery services qualifying under this
may agree in writing to the extension of this
Estimated Tax
provision. Timely filing of mail which does not
period. The period so agreed upon may be
bear the U.S. Post Office cancellation mark or
If an S corporation expects to have a tax liabil-
further extended by subsequent agreements
the date recorded or marked by the designated
ity of $500 or more on its tax return for the year, a
in writing made before the expiration of the
delivery service will be determined by reference
Declaration of Estimated Income Tax for Corpo-
period previously agreed upon.
to other competent evidence. The private delivery
rations and S Corporations, Form N-3, shall be
IRS Adjustment
service can tell you how to get written proof of the
filed for the corporation. Estimated payments are
If the corporation is filing an amended return
mailing date.
paid in four installments. These installments are
due to an IRS adjustment, check box (6) “IRS
due on or before the 20th day of the fourth, sixth,
Accounting Methods
ADJUSTMENT” and check box (5) “AMENDED”
and ninth months of the tax year and on or before
Figure ordinary income using the method of
near the top of the form. Also complete and at-
the 20th day of the first month following the tax-
accounting regularly used in keeping the cor-
tach Schedule AMD, Explanation of Changes on
able year. See the instructions for line 23b and
Amended Return, to the amended Form N-35
poration’s books and records. In all cases, the
Form N-3 for more information. Form N-3 can
and all schedules, forms, and attachments re-
method adopted must clearly reflect income.
be filed and payment made electronically through
(See section 446.)
quired to file a complete return. An amended
the State’s Internet portal. For more information,
Schedule K-1 (Form N-35) must also be filed
Unless the law specifically states otherwise, a
go to tax.hawaii.gov/eservices/.
with the amended Form N-35 and given to each
corporation may change the method of account-
Penalty and Interest
shareholder. Check box B(2), to indicate that it is
ing used to report income in earlier years (for in-
an amended Schedule K-1.
come as a whole or for any material item) by first
Late Filing of Return – The penalty for failure
filing an approved copy of federal Form 3115,
to file a return on time is assessed on the tax due
Change of Address Check Box
Application for Change in Accounting Method,
at a rate of 5% per month, or part of a month, up
If your mailing address has changed, you
with the Department. If the change qualifies for
to a maximum of 25%.
must notify the Department of the change by
an automatic change request on federal Form
Failure to Pay Tax After Filing Timely Return
checking the “Change of Address” box. Failure
3115, attach a copy of the Form 3115 filed with
– The penalty for failure to pay the tax after filing
to do so may prevent your address from being
the IRS to the first Hawaii return affected by the
a timely return is 20% of the tax unpaid within 60
updated, any refund due to you from being deliv-
change.
days of the prescribed due date.
Page 2
Note: Do not include any income that is tax-
Interest at the rate of 2/3 of 1% per month
preparer’s signature. Checking “Yes” will allow
or part of a month shall be assessed on unpaid
the Department to contact the paid preparer to
exempt on lines 1 through 5 or any nondeductible
taxes and penalties beginning with the first cal-
answer any questions that may arise during the
expenses on lines 7 through 19. These income
endar day after the date prescribed for payment,
processing of the corporation’s return. This des-
and expense items are used, however, in figuring
whether or not that first calendar day falls on a
ignation does not allow your third party designee
the accumulated adjustments account and the
Saturday, Sunday, or legal holiday.
to call the Department for information about the
other adjustments.
processing of the return or for other issues re-
A corporation that receives any exempt in-
Net Operating Loss and Other
lating to the return. This does not replace Form
come other than interest, or holds any property or
Deductions
N-848, Power of Attorney.
engages in an activity that produces exempt in-
An S corporation may not take the deduc-
come, must attach to its return an itemized state-
Transfers to Corporation Controlled
tion for net operating losses provided by section
ment showing the amount of each type of exempt
by Transferor
172 and the special deductions in sections 241
income and the expenses allocated to each type.
through 250 (except section 248).
If a person acquires stock or securities of
Line 1a - Gross Receipts
a corporation in exchange for property, and no
The corporation’s net operating loss is al-
gain or loss is recognized under section 351,
Enter gross receipts or sales from all business
lowed as a deduction from the shareholder’s
the transferor and transferee must attach the in-
operations except those you report on lines 4 and
gross income (section 1366).
formation required by IRC Regulations section
5. For reporting advance payments, see Treasury
Attachments
1.351-3.
Regulations section 1.451-5. To report income
from long term contracts, see section 460.
Attach schedules in alphabetical order and
Information Returns That May be
other forms in numerical order.
Generally, the installment method cannot be
Required
used for dealer dispositions of property. See sec-
If the corporation is filing any Forms N-4,
Form N-196, Annual Summary and Transmit-
tion 453(I) for details and exceptions. Enter on
Statement of Withholding For a Nonresident
tal of Hawaii Information Returns.
line 1a the gross profit on collections from install-
Shareholder of an S Corporation, attach these
Federal Form 966, Corporate Dissolution or
ment sales for any of the following:
forms to the front of Form N-35 in the left margin
Liquidation.
as indicated on Form N-35.
a. Dealer dispositions of property before March
Federal Forms 1099-DIV, INT, K, MISC, OID,
1, 1986,
If the corporation owes any tax, attach the
PATR and R. You may have to file these informa-
check or money order to the front of Form N-35
b. Dispositions of property used or produced in
tion returns to report certain dividends, interest
where indicated on top of any Form N-4s being
the trade or business of farming, and
payments, payment card and third party network
submitted.
c. Certain dispositions of timeshares and resi-
transactions, medical and health care payments,
Attach any Schedules NS at the very back of
dential lots reported under the installment
miscellaneous income, original issue discount,
the return.
method.
patronage dividends, and total distributions from
If you need more space on the forms or
Attach a schedule showing for the current
profit-sharing plans, retirement plans, and indi-
schedules, attach separate sheets and show the
year and 3 preceding years:
vidual retirement arrangements.
same information in the same order as on the
(a) Gross sales,
Use federal Form 1099-DIV to report actual
printed forms, but show your totals on the printed
(b) Cost of goods sold,
dividends paid by the corporation. Only distribu-
forms. Please use sheets that are the same size
tions from accumulated earnings and profits are
(c) Gross profit,
as the forms and schedules. Attach these sepa-
classified as dividends. Do not issue federal Form
rate sheets after all the schedules and forms. Be
(d) Percentage of gross profit to gross sales,
1099-DIV for dividends received by the corpora-
sure to put the corporation’s name and FEIN on
(e) Amount collected, and
tion that are allocated to shareholders on line 5 of
each sheet.
(f) Gross profit on amount collected.
Schedule K-1 (Form N-35).
Signature
Amounts received by a qualified high technol-
Specific Instructions
ogy business as royalties and other income de-
The return must be signed and dated by the
Line by Line
rived from patents, copyrights, and trade secrets
president, vice president, treasurer, assistant
owned by the qualified high technology busi-
treasurer, chief accounting officer, or any other
Federal Employer I.D. No. & Hawaii Tax I.D.
ness and developed and arising out of a quali-
corporate officer (such as tax officer) authorized
No.— Enter the Federal Employer I.D. No. & Ha-
fied high technology business are excluded from
to sign.
waii Tax I.D. No. in the space provided.
Hawaii income. Expenses related to this income
A receiver, trustee, or assignee must sign and
Foreign Address — If the corporation’s ad-
are deductible. “Qualified high technology busi-
date any return he or she is required to file on
dress is outside the United States or its posses-
ness” means a business conducting more than
behalf of a corporation.
sions or territories, enter the information on the
50% of its activities in qualified research. “Quali-
line for “City or town, State and Postal/ZIP Code”
If a corporate officer fills in Form N-35, the
fied research” means (1) the same as in section
in the following order: city, province or state, post-
Paid Preparer’s space under “Signature of Offi-
41(d) of the Internal Revenue Code, (2) the de-
al code, and the name of the country. Do not ab-
cer” should remain blank. If someone prepares
velopment and design of computer software for
breviate the country name.
Form N-35 and does not charge the corporation,
ultimate commercial sale, lease, license or to be
that person should not sign the return. Certain
Enter the number of Schedules NS
otherwise marketed, for economic consideration.
others who prepare Form N-35 should not sign.
With respect to the software’s development and
attached to this return
For example, a regular, full-time employee of the
design, the business shall have substantial con-
Enter, in this space provided, the number of
corporation such as a clerk, secretary, etc., does
trol and retain substantial rights to the resulting
Schedules NS, Hawaii S Corporation Agreement
not have to sign.
intellectual property; (3) biotechnology, (4) per-
of Nonresident Shareholder, which are attached
In general, anyone paid to prepare Form N-35
forming arts products, (5) sensor and optic tech-
to the return. See the instructions for Schedule
must sign the return and fill in the other blanks
nologies, (6) ocean sciences, (7) astronomy, or
NS later in these instructions for more informa-
in the Paid Preparer’s Information area of the re-
(8) nonfossil fuel energy-related technology. All
tion.
turn. The preparer may furnish his or her alter-
income earned and proceeds derived from stock
native identifying number for income tax return
Passive Activity Limitations
options or stock, including stock issued through
preparers (PTIN) instead of his or her social se-
the exercise of stock options or warrants, from
See the instructions for federal Form 1120S
curity number.
a qualified high technology business or from a
for information regarding limitations for passive
holding company of a qualified high technology
The preparer required to sign the return
activities.
business by an employee, officer or director of
MUST:
Income
the qualified high technology business, or inves-
Complete the required preparer information.
tor who qualified for the high technology business
Caution: Report only trade or business ac-
Sign in the space provided for the preparer’s
investment tax credit is excluded from income. If
tivity income or loss on lines 1a through 5. Do
signature.
the corporation is a qualified high technology
not report rental activity income or portfolio
Give a copy of Form N-35 to the taxpayer in
business and has included royalties and other
income or loss on these lines. Rental activity
addition to the copy to be filed with the De-
income derived from patents, copyrights, and
income and expenses and portfolio income and
partment.
trade secrets the corporation owns in the in-
expenses are reported separately on Schedule
The corporation may authorize the Depart-
come reported on line 1, these amounts should
K.
ment to discuss its tax return with its paid pre-
be included in the deductions shown on line 19.
Refer to the instructions for federal Form
parer by checking the “Yes” box above the paid
If the amount reported on line 19 includes these
1120S for further guidance.
Page 3
Line 10 - Bad Debts
royalties and other income from patents, copy-
proceeds to specific expenditures. These regula-
rights, and trade secrets, these amounts should
tions give rules for tracing debt proceeds to ex-
Enter the total debts that became worthless
be identified by attaching a separate schedule or
penditures.
in whole or in part during the year, but only to the
listing.
See federal temporary regulations section
extent such debts relate to a trade or business
1.163-8T for special rules on allocation of inter-
activity.
Line 2 - Cost of Goods Sold
est expense, transitional rules, and other details.
Line 11 - Rents
See the instructions for Schedule A.
Generally, prepaid interest can only be de-
Generally, if the gross income from an activity
Line 5 - Other Income
ducted over the period to which the prepayment
consists of amounts paid principally for the use
applies. See section 461(g) for details.
Enter any other trade or business income not
of real or personal tangible property held by the
listed above and explain its nature on an attached
Line 14 - Depreciation
corporation, the activity is a rental activity. There
schedule. Examples of other income are recover-
are several exceptions to this general rule. Re-
Enter depreciation expense from federal
ies of bad debts deducted in earlier years under
fer to the Instructions to federal Form 1120S for
Form 4562 claimed on assets used in a trade or
the specific charge-off method, and refunds of
guidance.
business activity that is not claimed elsewhere on
taxes deducted in earlier years. Do not include
the return.
Line 12 - Taxes and Licenses
those items requiring separate computations by
As noted on page 1 of these instructions, Ha-
shareholders that must be reported on Sched-
Enter taxes and licenses paid or incurred in
waii has not adopted federal “bonus” depreciation
ule K. (See the instructions for Schedules K and
the trade or business activities of the corporation,
provisions. If a depreciation deduction is claimed
K-1). Do not offset current year’s taxes with tax
if not reflected in cost of goods sold. Taxes in-
for Hawaii tax purposes, the corporation must: (a)
refunds.
curred in the production or collection of income,
complete a federal Form 4562 for Hawaii tax pur-
If “other income” consists of only one item,
or for the management conservation, or mainte-
poses using the federal depreciation guidelines
identify it by showing the account caption in pa-
nance of property held for the production of in-
in effect before the adoption of the “bonus” depre-
rentheses on line 5. A separate schedule need
come may be considered to be deductible only
ciation provisions and (b) attach the completed
not be attached to the return in this case.
under section 212. These are not deductible on
federal Form 4562 to the Hawaii tax return. The
line 12; they are reported separately on Sched-
Do not net any expense item (such as inter-
corporation must also keep records of the differ-
ules K and K-1, line 14.
est) with a similar income item. Report all trade or
ences in the asset’s depreciable basis for federal
business expenses on lines 7 through 19.
Do not deduct taxes assessed against local
and Hawaii tax purposes.
benefits that increase the value of the property
Deductions
Do not include any expense deduction for
assessed (such as for paving, etc.), federal in-
recovery property (section 179) on this line. This
Limitations on Deductions
come taxes, estate, inheritance, legacy, succes-
amount is not deductible by the corporation. In-
sion, and gift taxes, or taxes reported elsewhere,
Caution: Report only trade or business activ-
stead, it is passed through to the shareholders on
such as in Schedule A.
ity related expenses on lines 7 through 19. Do
Schedules K and K-1, line 12.
not report rental activity expenses or expens-
Line 13 - Interest
Line 15 - Depletion
es related to portfolio income on these lines.
Include on line 13 only interest incurred in the
Expenses related to rental activities and portfolio
If the corporation claims a deduction for tim-
trade or business activity(ies) of the corporation
income are reported directly on Schedule K.
ber depletion, complete and attach federal Form
that is not claimed elsewhere on the return.
T, Forest Activities Schedule.
Refer to federal instructions for Form 1120S for
Do not include interest expense on debt used
further guidance on limitations on deductions.
Do not report depletion deductions for oil and
to purchase rental property or debt used in rental
gas properties on this line. Each shareholder
Line 7 - Compensation of Officers
activities for which income or loss is reported on
figures depletion on these properties under sec-
lines 2 and 3 of Schedule K.
Enter on line 7 the total compensation of all
tion 613A(c)(13). See the instructions for federal
Do not include interest expense which is
officers except compensation reported else-
Form 1120S, Schedule K-1, box 17, code R, for
clearly and directly allocable to gross income that
where on the return, such as amounts included
information on oil and gas depletion that must be
is portfolio or investment income which is report-
in cost of goods sold, elective contributions to
supplied to the shareholders by the corporation.
ed separately on line 15a of Schedule K.
section 401(k) cash or deferred arrangement,
Line 18 - Employee Benefit Programs
or amounts contributed under a salary reduction
Do not include interest on debt proceeds allo-
SEP agreement.
Enter the amount of contributions to em-
cated to distributions made to shareholders dur-
ployee benefit programs (such as insurance and
ing the tax year. Instead, report such interest on
Line 8 - Salaries and Wages
health and welfare programs) that are not an inci-
line 14 of Schedules K and K-1. To determine the
Enter on line 8 the amount of total salaries
dental part of a pension, profit-sharing, etc., plan
amount to allocate to distributions to sharehold-
and wages (other than salaries and wages de-
included in line 17.
ers, see federal Notice 89-35, 1989-1, C.B. 675.
ducted elsewhere on the return) paid or incurred
See instructions for federal Form 1120S for
Do not include interest expenses on debt re-
for the tax year. If the corporation is claiming the
more information.
quired to be allocated to the production of desig-
credit for the employment of vocational rehabilita-
nated property. Interest that is allocable to certain
Line 19 - Other Deductions
tion referrals, total wages paid must be reduced
property produced by an S corporation for its own
by the amount of the credit taken.
Enter any other allowable deductions related
use or for sale must be capitalized. In addition,
If a shareholder or a member of the family of
to any trade or business activity for which there
the corporation must also capitalize any interest
one or more shareholders of the corporation ren-
is no line on page 1 of the return. Do not include
on debt that is allocable to an asset used to pro-
ders services or furnished capital to the corpo-
those items requiring separate computations
duce the above property. A shareholder may have
ration for which reasonable compensation is not
which must be reported on Schedules K and K-1.
to capitalize interest that the shareholder incurs
paid, the Department may make adjustments in
Do not deduct losses incurred in transactions
during the tax year with respect to the production
the items taken into account by such individuals
which were not connected with the corporation’s
expenditures of the S corporation. Similarly, inter-
and such shareholders as is necessary to reflect
trade or business. Report these losses separate-
est incurred by an S corporation may have to be
the value of such services or capital. See section
ly to the shareholders on Schedules K and K-1,
capitalized by a shareholder with respect to the
1366(e).
line 14. Do not take the section 199 deduction for
shareholder’s own production expenditures. The
U.S. production activities.
information required by the shareholder to prop-
Line 9 - Repairs and Maintenance
Include in line 19 the deduction taken for
erly capitalize interest for this purpose must be
Enter the cost of incidental repairs, such as
amortization. See instructions for federal Form
provided by the corporation in an attachment for
labor and supplies, and maintenance that do not
4562 for more information.
line 29, of Schedule K-1. See section 263A(f) and
add to the value of the property or appreciably
Treasury Regulations sections 1.263A-8 through
In most cases, you may not take a deduction
prolong its life. New buildings, machinery, or per-
1.263A-15 for more information.
for any part of any item allocable to a class of
manent improvements that increase the value of
exempt income. (See section 265 for exceptions).
Federal temporary regulations section 1.163-
the property are not deductible. They are charge-
Items directly attributable to wholly exempt in-
8T gives rules for allocating interest expense
able to capital accounts and may be depreciated
come must be allocated to that income. Items di-
among activities so that the passive activity
or amortized.
rectly attributable to any class of taxable income
limitation, investment interest limitation, and the
Do not include section 179 expense items.
must be allocated to that taxable income.
personal interest limitation can be properly fig-
Report this amount on Schedule K, line 12, and
ured. Generally, interest expense is allocated in
If an item is indirectly attributable both to tax-
each shareholder’s share on Schedule K-1, line
the same manner as debt is allocated. Debt is
able income and to exempt income, allocate a
12.
allocated by tracing disbursements of the debt
Page 4
reasonable proportion of the item to each, based
transfer, whichever applies. The S corporation
payment penalty for the period of underpayment.
on all the facts in each case.
must pay each of the remaining installments by
Use Form N-220, Underpayment of Estimated
the due date (not including extensions) of Form
Tax by Corporations, to see if the corporation
Attach a statement showing (1) the amount of
N-35 for the three succeeding tax years. Enter on
owes a penalty and to figure the amount of the
each class of exempt income and (2) the amount
line 22d the amount of the LIFO tax installment.
penalty.
of expense items allocated to each such class.
Show the amount allocated by apportionment
Line 22e -
Line 27 - Tax Due
Interest due under the look-back
separately.
method for completed long-term contracts
Enter on line 27 the sum of lines 22f and 24
The deductions for business meals and en-
If the corporation used the look-back method
minus 23d. If this amount is zero or less, enter 0.
tertainment expenses are limited to 50%. Meal
under section 460(b)(2) for certain long-term
If this amount is more than zero, pay this amount
expenses are deductible only if the expenses
contracts, complete federal Form 8697, Inter-
by certified or cashier’s check made payable to
are directly related or associated with the active
est Computation Under the Look-Back Method
“Hawaii State Tax Collector” and attach the check
conduct of a trade or business. In addition, the
for Completed Long-Term Contracts. If you will
to the front of Form N-35.
amount that may be deducted for entertainment
owe interest on an unpaid amount, calculate
If the corporation cannot pay the full amount
tickets, skyboxes, or other private luxury boxes
the amount due using the rate of 2/3 of 1% per
that is owed, you can ask to enter a payment
is limited. See federal Publication 463 for details.
month, or part of a month, beginning the first cal-
agreement after you receive a billing notice for
endar day after the date prescribed for payment
Line 21 - Ordinary Income (loss)
the balance due. Please be aware that penalty
whether or not that first calendar day falls on a
and interest continue to accrue on the unpaid tax
This is nonseparately computed income or
Saturday, Sunday, or legal holiday. Include the
amount even though you have not yet received
loss as defined in section 1366(a)(2). This in-
amount of interest due on line 22e. Attach Form
a billing notice. Payments will be accepted and
come or loss is entered on Schedule K, line 1.
8697 with a check made payable to “Hawaii State
applied to the corporation’s tax liability; however,
Line 21 income is not used in figuring line 22a
Tax Collector” to Form N-35. Write the corpora-
to ensure that the corporation’s payments are ap-
or 22b tax. See instructions for line 22a for figur-
tion’s FEIN, daytime phone number, and “Form
plied correctly, your check or money order must
ing taxable income for purposes of line 22a or
8697 interest” on the check. If you are due a re-
have: (1) the corporation’s name as shown on the
22b tax.
fund, do not attach Form 8697 to your Form N-35.
return clearly printed on the check, (2) the cor-
Instead, file federal Form 8697 separately with
Line 22a - Excess Net Passive Income
poration’s FEIN, and (3) the tax year and form
the Department. Complete the signature section
Tax
number being filed (e.g., 2018 N-35).
of federal Form 8697 following the instructions for
NOTE: Any payment made with Form N-4,
If the corporation has always been a subchap-
the signature section of Form N-35. File federal
Statement of Withholding for a Nonresident
ter S corporation, the line 22a tax does not apply.
Form 8697 by the date you are required to file
Shareholder of an S Corporation, must be paid
S corporations that have accumulated earn-
your Form N-35 (including extensions).
with Form N-35. If there is a refund due to the
ings and profits at the end of the taxable year,
Line 23b
S corporation on line 26b, this refund cannot be
passive investment income totaling over 25% of
used to offset the payment with Form N-4. For
gross receipts, and have taxable income are sub-
If the S corporation is a Hawaii corporation
more information on Form N-4, see page 7.
ject to a tax imposed at the rate of 6.4%. This
with an expected corporate tax liability of $500
tax is applied against the smaller of the S cor-
or more, the corporation must file a declaration
For Amended Returns
poration’s excess net passive income or taxable
of estimated income tax and pay the estimated
Line 29 - Amount paid (overpaid) on
income. See the worksheet for Excess Net Pas-
tax liability in four installments. See Form N-3 for
original return
sive Income Tax in federal instructions for Form
more information. If the S corporation is not a
1120S for the computation of these amounts.
Hawaii corporation and less than 15% of the cor-
Enter on line 29 the amount paid on the cor-
Use Hawaii Form N-30 for the taxable income
poration’s business for the taxable year is attrib-
poration’s original return (from line 27 on the
computation. Attach a schedule to your Hawaii
uted to Hawaii, the filing of an estimate and the
original return) or the amount overpaid (from line
S corporation return, following the format of the
payment of estimated tax may be excused upon
25 on the original return). Place a minus sign, “-”,
worksheet to show your tax computation.
application to the Department. Form N-3 can be
before the amount of any overpayment.
filed and payment made electronically through
For tax years beginning after May 25, 2007,
Line 30 - BALANCE DUE (REFUND) with
the State’s Internet portal. For more information,
gains from sales or exchanges of stock or se-
amended return
go to tax.hawaii.gov/eservices/.
curities will not be treated as an item of passive
If no amount was entered on line 29, enter on
investment income when figuring the excess net
Estimated taxes which are paid by the corpo-
line 30 the amount, if any, from line 25 or line 27
passive income tax on Form N-35, line 22a.
ration on behalf of its nonresident shareholders
of the amended return. If there is an amount on
in anticipation of the filing of a composite return
Line 22b
line 29, and that amount is:
should be made on Form N-1. See the instruc-
Refer to instructions for Schedule D (Form
tions for filing composite returns later in these
a. A payment and there is an amount on line 25
N-35).
instructions for more information. Form N-1 can
of the amended return, add these amounts
be filed and payment made electronically through
and enter the total on line 30 with a minus
Line 22c
the State’s Internet portal. For more information,
sign, “-”, before the amount.
Enter the number of N-4’s attached to the
go to tax.hawaii.gov/eservices/.
b. A payment and there is an amount on line
corporation’s return. On line 22c, enter the total
Any amount that was paid on an S corpora-
27, subtract the amount on line 29 from the
amount of taxes withheld as shown on the Forms
tion’s Form N-3 for the tax year should be indi-
amount on line 27 and enter the difference on
N-4 attached.
cated in the N-3 space on line 23b and included
line 30. If the difference is a negative amount,
Line 22d - LIFO Recapture Tax
in the line total.
show the negative amount on line 30 with a
minus sign, “-”.
The corporation may be liable for the addition-
If the corporation is not a Hawaii corporation
al tax due to LIFO recapture under Regulations
and it sold any Hawaii real property and Hawaii
c. An overpayment and there is an amount on
section 1.1363-2 if:
State income taxes were withheld from the sales
line 25, consider the amount on line 25 a
proceeds, the amount of tax so withheld, or the
negative amount and subtract the amount on
1. The corporation used the LIFO inventory
amount of tax remaining with the Department if
line 29 from the amount on line 25, and enter
method for its last tax year as a C corpora-
the corporation filed a Form N-288C, Application
the difference on line 30. If the difference is a
tion, or
for Tentative Refund of Withholding on Disposi-
negative amount, show the negative amount
2. A C corporation transferred LIFO inventory to
tions by Nonresident Persons of Hawaii Real
on line 30 with a minus sign, “-”. If there is an
the corporation in a nonrecognition transac-
Property Interests, should be entered in the
overpayment on the amended return, do NOT
tion in which those assets were transferred
N-288 space on line 23b if the corporation is sub-
enter this amount on line 26b.
basis property.
ject to Hawaii tax on the sale of property. If the
d. An overpayment and there is an amount on
The additional tax due to LIFO recapture is
sale of Hawaii property is not taxed at the corpo-
line 27, subtract the amount on line 29 from
figured for the corporation’s last tax year as a
rate level, the amount of tax held by the Depart-
the amount on line 27, and enter the result
C corporation or for the tax year of the transfer,
ment is to be passed through to the shareholders
on line 30. This is the amount the corporation
whichever applies. See the Instructions for Form
on line 16o of Schedules K and K-1.
owes on its amended return.
N-30 to figure the tax. The tax is paid in four equal
Line 24 - Underpayment of Estimated
If the corporation has an amount due on its
installments. The C corporation must pay the first
amended return, make check or money order
installment by the due date (not including exten-
Tax Penalty
payable to “Hawaii State Tax Collector.”
sion) of Form N-30 of the corporation’s last tax
A corporation that fails to make estimated tax
year as a C corporation or for the tax year of the
payments when due may be subject to an under-
Page 5

Download Instructions for Form N-35 - S Corporation Income Tax Return 2018

371 times
Rate
4.4(4.4 / 5) 22 votes
ADVERTISEMENT
Page of 9