How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask R. Klein, EA Your Own Question

R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2882
Experience:  Over 20 Years experience
63817126
Type Your Tax Question Here...
R. Klein, EA is online now
A new question is answered every 9 seconds

In mid 2012, I made an agreement with my business partner that

Resolved Question:

In mid 2012, I made an agreement with my business partner that is as follows:

- I sold my claim/intellectual property from my half of our business (a North Carolina S Corp) for 50% share of net operating income year-to-date. This totaled $14k.
- In addition, we agreed that I would receive an extra premium $11k.
- We would retain our 50/50 shares for tax purposes and he would then dissolve the business and move it to his home state of CA.

I do my taxes via Turbotax, and entered my Schedule K1 from the business (which had a short tax year since it was closed in mid-2012). This schedule K1 is very simple. It has $24k in box 1 for Ordinary business income and then the amount of my half of the net operating income (the $14k) in box 16, "Items affecting shareholder basis" (it is also marked with D) in that box. This is the Form 1120S Schedule K1.

My question is, since this number is XXXXX on my K1, do I have to report is elsewhere, or does the K1 cover it? When I entered my K1 into TurboTax, it increased the taxes I owe, so I'm wondering if I report the $14k that I received if I am reporting it twice.

(Also, I just reported my $11k as "Misc Income", would this be correct?)

Thanks!
Submitted: 1 year ago.
Category: Tax
Expert:  R. Klein, EA replied 1 year ago.

Randalltax :

Thank you for contacting me about your Tax issue. I will work hard to help you understand the issue clearly.

Randalltax :

There should be one K-1 on the 1120S for each shareholder showing his share of the income of the corporation. If 24K is your share and it appears in YOUR K-1 in Box 1, this is your income from operations.

Randalltax :

This income will appear on Page 2 of Schedule E only.

Randalltax :

Additionally, when you liquidate the corporation, you must show a sale of your shares of the S-Corp on Schedule D.

Randalltax :

Your "sale" price is the value of all of the money and assets your received at liquidation. You must determine your cost basis to determine if there was any gain or loss.

Randalltax :

You have an "outside" basis of what you put into the company originally to get your shares. This is "adjusted" by your inside basis.

Randalltax :

Your inside basis is the earnings of your corporation minus any distributions over time.

Randalltax :

In other words, if you start by contributing 1000 cash, that's your outside basis.

Randalltax :

If you company, over time, made $3000, and paid out $3200 as distributions, then your inside basis is now 3000-3200, or -200. Your total basis is the 1000 original plus the negative 200, for an adjusted basis of 800.

Randalltax :

If you received 1000 at the close of the corporation, your schedule D shows 1000 sale price - 800 basis for a 200 gain.

Customer:

Ah okay - I see what you are saying. Our company used to be an LLC and I don't believe any cash was put in for our outside basis.

Customer:

Does it matter that I received the $14k distribution from the agreement prior to the liquidation of the S-Corp? Or would the IRS see that as my gain from the liquidation of the business?

Randalltax :

The distribution affects inside basis.

Randalltax :

Your distributions are counted from Day One of the corporation.

Randalltax :

It doesn't matter if distributions are paid every day, once a year, or only at the closing of the entity.

R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2882
Experience: Over 20 Years experience
R. Klein, EA and 3 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.