S Corp Stock Basis Calculation

S Corporation Stock Basis Formula:

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

Initial Basis ($):

Income ($):

Distributions ($):

Losses ($):

Adjusted Basis for S Corp Stock:

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1. What is S Corporation Stock Basis?

S Corporation stock basis represents the shareholder's investment in the S corporation for tax purposes. It determines the amount of losses and deductions a shareholder can claim and affects the tax treatment of distributions.

2. How Does the Calculator Work?

The calculator uses the S Corporation stock basis formula:

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

Where:

$ Initial $ — Initial investment in S corporation stock
$ Income $ — Share of S corporation income and gains
$ Distributions $ — Cash and property distributions received
$ Losses $ — Share of S corporation losses and deductions

Explanation: The basis calculation tracks the shareholder's economic investment in the corporation, increasing with income items and decreasing with distributions and losses.

3. Importance of Stock Basis Calculation

Details: Accurate basis calculation is crucial for determining deductible losses, tax-free distributions, and capital gains upon sale of stock. Basis cannot go below zero for loss deduction purposes.

4. Using the Calculator

Tips: Enter all amounts in dollars. Include initial stock purchase price, annual income allocations, any distributions received, and loss allocations. All values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What happens if basis goes negative?
A: Losses cannot be deducted beyond zero basis. Excess losses are suspended and carried forward to future years when basis is restored.

Q2: How does debt affect basis?
A: Shareholder loans to the S corporation can create debt basis, allowing additional loss deductions beyond stock basis.

Q3: When should basis be calculated?
A: Basis should be calculated annually, typically at year-end, to determine loss limitations and distribution taxability.

Q4: Are distributions taxable?
A: Distributions are tax-free to the extent of stock basis. Distributions exceeding basis are generally taxed as capital gains.

Q5: What records should be maintained?
A: Maintain detailed records of stock purchases, K-1 allocations, distribution records, and loan documentation for audit purposes.