Calculate Stock Basis In An S Corporation

Stock Basis Formula:

\[ Basis = Initial + Income - Distributions - Losses \]

Initial Basis:

Income:

Distributions:

Losses:

Stock Basis:

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1. What Is S-Corporation Stock Basis?

Stock basis represents a shareholder's investment in an S-corporation for tax purposes. It determines the amount of losses and deductions a shareholder can claim, as well as the tax treatment of distributions from the corporation.

2. How Does The Basis Calculation Work?

The calculator uses the standard basis formula:

\[ Basis = Initial + Income - Distributions - Losses \]

Where:

Initial — Original investment in the S-corporation stock
Income — Share of S-corporation income allocated to shareholder
Distributions — Cash or property distributed to shareholder
Losses — Share of S-corporation losses allocated to shareholder

Explanation: Basis starts with the initial investment, increases with income allocations, and decreases with distributions and loss allocations.

3. Importance Of Tracking Stock Basis

Details: Proper basis tracking is essential for S-corporation shareholders to determine deductible loss limits, avoid taxable distributions, and maintain compliance with IRS regulations.

4. Using The Calculator

Tips: Enter all amounts in dollars. Include only positive values. The calculator will compute your current stock basis based on the standard S-corporation basis adjustment formula.

5. Frequently Asked Questions (FAQ)

Q1: What happens if basis goes negative?
A: Losses in excess of basis are suspended and cannot be deducted in the current year. They may be carried forward to future years when basis is restored.

Q2: How does debt affect stock basis?
A: Shareholder loans to the S-corporation create debt basis, which is separate from stock basis but follows similar rules for loss deductions.

Q3: When must basis be adjusted?
A: Basis must be adjusted annually for income, losses, distributions, and additional contributions to accurately reflect the shareholder's investment.

Q4: Are distributions taxable?
A: Distributions are generally tax-free to the extent they don't exceed stock basis. Distributions exceeding basis are typically taxed as capital gains.

Q5: What records should be maintained?
A: Keep detailed records of initial investment, annual K-1 statements, distribution records, and any additional capital contributions.