How to Calculate Stock Basis S Corp

S Corporation Stock Basis Formula:

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

Contributions:

Income:

Distributions:

Losses:

Stock Basis:

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1. What is S Corporation Stock Basis?

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

2. How Does the Calculator Work?

The calculator uses the S Corporation stock basis formula:

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

Where:

\( Contributions \) — Capital contributions made to the corporation
\( Income \) — Share of S Corporation income allocated to shareholder
\( Distributions \) — Cash or property distributions received
\( Losses \) — Share of S Corporation losses allocated to shareholder

Explanation: The basis calculation tracks the shareholder's economic investment in the S Corporation, which affects tax consequences of distributions and loss deductions.

3. Importance of Stock Basis Calculation

Details: Accurate basis tracking is crucial for determining tax-free distributions, limiting loss deductions, calculating gain/loss on stock sales, and complying with IRS requirements for S Corporation shareholders.

4. Using the Calculator

Tips: Enter all amounts in dollars. Contributions and income increase basis, while distributions and losses decrease basis. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What happens when stock basis reaches zero?
A: Once basis reaches zero, additional losses cannot be deducted in the current year but may be carried forward. Distributions in excess of basis become taxable.

Q2: How often should basis be calculated?
A: Basis should be calculated annually, typically at year-end, to track changes from operations, contributions, and distributions.

Q3: What items increase stock basis?
A: Basis increases with capital contributions, share purchases, and the shareholder's pro-rata share of corporate income and gains.

Q4: What items decrease stock basis?
A: Basis decreases with distributions, share sales, and the shareholder's pro-rata share of corporate losses and deductions.

Q5: Is debt basis different from stock basis?
A: Yes, S Corporation shareholders may also have debt basis from loans made to the corporation, which provides additional loss deduction capacity.