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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I have received a sch k-1 from an s corp with 23,000 on the ...

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I have received a sch k-1 from an s corp with 23,000 on the ordinary income line. Please tell me how to offset this distribution of income with my past tax basis. I have 100,000 basis and need to know what forms to use for a income distribution. This is the first distrubution and I have never offset it. Is sch D used for ordinary distribution or sch c. What form and how if you can
Submitted: 6 years ago.
Category: Tax
Expert:  Merlo replied 6 years ago.

HelloCustomer

S Corporations generally do not pay tax at the corporate level. The tax structure of an S Corporation is designed so that any income or loss of the S Corporation is filtered down to the individual shareholders, who then report their share of the income or loss on their personal income tax returns. If you received a K-1 form from the S Corporation of which you are a shareholder, and it reported that you have ordinary income of $23,000, then you would need to report that on your regular income tax return as ordinary income, just the same as you would wages. You can, of course, continue to take whatever deductions you might have against your ordinary income, such as mortgage interest, property taxes, etc., but there is not offset in particular that would apply to income earned from an S Corporation, regardless of what your investment was in that corporation.

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Customer: replied 6 years ago.
You mean that the basis does not offset ordinary
income?? I have noway of decreasing the ordinary income from active participant all at risk stock holder.
Expert:  Merlo replied 6 years ago.

Hello againCustomer

That is correct. Your "basis" in the S Corporation is the amount you invested to become a shareholder. That amount is not deductible against any ordinary income that the S Corporation earns. The only time that your basis will be allowed as a deduction is if the assets of the corporation are sold.

If this answer has been helpful, kindly press the "Accept" key. Thanks again.

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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