1. What is S Corporation Basis?

S Corporation basis represents a shareholder's investment in the corporation for tax purposes. It tracks the shareholder's economic investment and determines the tax treatment of distributions and losses.

2. How Does the Calculator Work?

The calculator uses the S corporation basis formula:

Where:

• Initial Basis — Original investment in the S corporation
• 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: The basis calculation ensures proper tracking of shareholder investment and determines the tax consequences of corporate transactions.

3. Importance of Basis Calculation

Details: Accurate basis calculation is crucial for determining the tax treatment of distributions (return of capital vs. dividend), limiting loss deductions, and calculating gain/loss on stock disposition.

4. Using the Calculator

Tips: Enter all amounts in USD. Initial basis represents your original investment. Income and losses should reflect your share of S corporation items. Distributions include all cash or property received from the corporation.

5. Frequently Asked Questions (FAQ)

Q1: What happens when basis reaches zero?
A: Once basis reaches zero, additional losses cannot be deducted currently and distributions may become taxable as capital gains.

Q2: How is initial basis determined?
A: Initial basis typically equals cash plus adjusted basis of property contributed to the corporation in exchange for stock.

Q3: Can basis be negative?
A: No, basis cannot go below zero for tax purposes. Excess losses are suspended and carried forward.

Q4: What about debt basis?
A: This calculator tracks stock basis only. Shareholders may also have debt basis from loans made to the corporation.

Q5: How often should basis be calculated?
A: Basis should be calculated annually, typically at year-end, to determine tax consequences for the year.