Form 8990 Instructions

Form 8990 is used by the IRS to determine if you have earned enough money from your business to meet the required tax requirements for that year. You must submit a copy of this form to the IRS in order to verify your status as a business owner. If you qualify, you will then be able to receive an IRS refund. However, if you are not eligible for a refund, you will have to file Form 990-PF and pay your taxes.

Generally, the IRS does not require Form 8990 for taxpayers with gross receipts of less than $25 million. A small business is defined as a taxpayer who has had annual gross receipts under this amount for the prior three tax years. However, if your business is subject to Section 163(j) limitations, you will need to file Form 8990.

How to Fill Out Form 8990?

There are 3 sections and two schedules on Form 8990:

• Part I: Computation of Allowable Business Interest Expense
• Part II: Partnership Pass-Through Items 
• Part III: S Corporation Pass-Through Items 
• SCHEDULE A: Summary of Partner’s Section 163(j) Excess Items
• SCHEDULE B: Summary of S Corporation Shareholder’s Excess Taxable Income and Excess Business Interest Income

Section I—Business Interest Expense

• Line 1: Current year business interest expense.
• Line 2: Disallowed business interest expense..carryforwards from prior years.
• Line 3: Partner’s excess business interest expense treated as paid or accrued in the current year (Schedule A, line 44, column (h))
• Line 4: Floor plan financing interest expense. (Check the IRS instructions.)
• Line 5: Add lines 1 through 4 to figure your total business interest expense.

Section II—Adjusted Taxable Income

• Line 6: Taxable Income
• Additions
  • Line 7: Any item of loss or deduction that is not properly allocable to a trade or business of the taxpayer
  • Line 8: Any business interest expense not from a pass-through entity
  • Line 9: Net operating loss deduction amount under section 172
  • Line 10: Qualified business income deduction amount allowed under section 199A 
  • Line 11: Deduction allowable for depreciation
  • Line 12: Amount of any loss or deduction items from a pass-through entity
  • Line 13: Other additions.
  • Line 14: Total current year partner’s excess taxable income ( see Schedule A, Line 44, column (f) ).
  • Line 15: Total current year S corporation shareholder’s excess taxable income (Schedule B, line 46, column (c))
  • Line 16: Add lines 7 through 15 to figure your total taxable income
• Reductions
  • Line 17: Any item of income or gain that is not properly allocable to a trade or business of the taxpayer
  • Line 18: Any business interest income not from a pass-through entity
  • Line 19: Any income or gain items amount from a pass-through entity
  • Line 20: Other reductions
  • Line 21: Combine lines 17 through 20 to figure the total amount
  • Line 22: Combine lines 6, 16, and 21 to figure adjusted taxable income.

Section III—Business Interest Income 

• Line 23: Current year business interest income
• Line 24: Excess business interest income from pass-through entities
• Line 25: Add lines 23 and 24 to figure your total business interest income

Section IV—163(j) Limitation Calculations

• Limitation on Business Interest Expense  
  • Line 26: Multiply adjusted taxable income (line 22) by the applicable percentage
  • Line 27: Business interest income (line 25)
  • Line 28: Floor plan financing interest expense (line 4)
  • Line 29: Add lines 26, 27, and 28 to figure the total amount
• Allowable Business Interest Expense 
  • Line 30: Total current year business interest expense deduction.
  • Line 31: Subtract line 29 from line 5 to figure the disallowed business interest expense amount.

Part II Partnership Pass-Through Items 

• Excess Business Interest Expense 
  • Line 32: Enter the amount from line 31 to figure Excess business interest expense.
• Excess Taxable Income ( skip lines 33 through 37 if you entered an amount on line 32 )
  • Line 33: Subtract the sum of lines 4 and 25 from line 5.
  • Line 34: Subtract line 33 from line 26
  • Line 35: Divide line 34 by line 26 and enter the result as a decimal.
  • Line 36: Multiply line 35 by line 22; this is your excess taxable income.
• Excess Business Interest Income 
  • Line 37: Subtract the sum of lines 1, 2, and 3 from line 25 to figure Excess business interest income.

Part III S Corporation Pass-Through Items

• Excess Taxable Income 
  • Line 38: Subtract the sum of lines 4 and 25 from line 5
  • Line 39: Subtract line 38 from line 26
  • Line 40: Divide line 39 by line 26 and enter the result as a decimal
  • Line 41: Multiply line 40 by line 22 to figure out your excess taxable income.
• Excess Business Interest Income 
  • Line 42: Subtract the sum of lines 1, 2, and 3 from line 25 to figure your excess business interest income
  • Line 43-44: SCHEDULE A Summary of Partner’s Section 163(j) Excess Items
  • Line 45-46: SCHEDULE B Summary of S Corporation Shareholder’s Excess Taxable Income and Excess Business Interest Income