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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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I have received S corp form 1120 for orndinary income ...

Customer Question

I have received S corp form 1120 for orndinary income received and need to know how to report the basis. My basis is more than 23,000. I do not want to add it to 1040 income. The software automatically adds it to the income. Do I use sch D but I have not sold the shares,yet. The corp has never made revenue of any kind, the money received is from a buyer , but no shares have been given up yet because the buyer has not finished buying.
Submitted: 6 years ago.
Category: Tax
Expert:  RD replied 6 years ago.

Did you receive Schedule K-1 reporting your share of income and expenses?

Basis is not taxable as income and is not reported on Sch K-1. Only the items that affect basis may be reported.

Also, even if you do not receive any distributions from the S Corp, if the S Corp has income than this income(to the extent of your share) will be taxed and reported by you on your tax return. This amount will also increase your basis.

Is the S Corp selling the shares or are you selling your interest in S Corp? How is the amount reported on Sch k-1 to you?

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

 

 

Customer: replied 6 years ago.
Reply to RD's Post: yes, the corp gave me a sch k-1. On the top line
"ordinary income" it reports $23,000. The money is from a sale of the only asset it owns and it will be dissolved. it is a liquidation.Can you give me the answer how to offset the basis as reported on the Sch K-1 "ordinary income" and then
as a liquidation. I am not selling my shares separate from the other stockholders. We are selling the business entirely where it will be dissolved after we are paid in full.
Expert:  RD replied 6 years ago.

If the amount received by the S Corp is from sale of Accounts Receivable than this will be taxed to you as ordinary income. Are you going to receive any other amounts from the S Corp? You may want to get the information on your basis from the S Corp? Basis of the S Corp may change as a result of income/loss or distributions taken by you in earlier years.

f the amount received isf rom sale of assets than you may want to check why this has been reported as ordinary income?

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

 

Customer: replied 6 years ago.
Again, from the line "ordinary income", on line sch k-1 $23,000 is reported. Now again, how do
I offset this 23,000. I must tell the irs that this money is a return of capital, but how???

Please be specific on the info given here. This
money is reported as ordinary income and I need to offset it (report the basis which is more than
the amount received)
Expert:  RD replied 6 years ago.

Please note that if the K-1 has reported this as ordinary income than this should be related to sale of assets that would generate ordinary income and hence will be taxable as such.

If this is all you are going to receive from the S Corp and the S Corp has liquidated or dissolved than you will report the loss of investments on Sch D. You will report the disposition of your basis(investment) with zero sale proceeds if you are not going to receive anything against your basis. In fact note than this ordinary income that has been reported to you on Sch K-1 will also increase your basis unless you also received a distribution from the S Corp. Hence, this would generate capital loss.

Capital loss is generally offsetted against capital gain and balance capital loss can only offset your other income to the extent of $3000($1500 if married filing separately). Unused capital loss is carried forward and allowed in similar manner in future years.

You cannot report the amount reported on K-1 as ordinary income as a a return of capital. If you think that the K-1 is incorrect than you may want to contact the S Corp and have it corrected.

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

 

RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
RD and 3 other Tax Specialists are ready to help you
Customer: replied 6 years ago.
I have another question.
I have received a sch k-1 from the S-corp with
a distribution of $23,000 on the ordinary income
line. I need to know how to offset it with my basis , which is over $100,000.

Tell me what Tax forms and how to offset the
distribution. The corp has no accumulated income and I am single etc.
Expert:  RD replied 6 years ago.

Are you saying the S Corp has reported ordinary income of $23,000 and that your basis is $100,000 which will be worthless and you will not get anything else from the S Corp?

 

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