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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3887
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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I am preparing a subchapter S corporation Tax return with two

Resolved Question:

I am preparing a subchapter S corporation Tax return with two owners. they each have a stock account of 5,000. They also took draws for 20K during the year that are reflected in their equity accounts as Draws. they also took a salary from the corp.,

On the K-1 under Line 16d, do I show those distributions, and do they flow to the owners as income.
Submitted: 11 months ago.
Category: Tax
Expert:  Lane replied 11 months ago.

NPVAdvisor :

Line 16d is for for NON-Dividend distributions, and no, they are not income, but rather a reduction in their basis

NPVAdvisor :

Only non-dividend distributions affect stock basis, dividend distributions do not. The corporation is responsible for telling the shareholder the amount of non-dividend and dividend distributions. Line 16d of Schedule K-1 reflects non-dividend distributions. Form 1099-DIV is used to report dividend distributions; dividends are not reported on the shareholder's Schedule K-1.

NPVAdvisor :

Questions?

NPVAdvisor : See this: ... Computing Stock Basis

In computing stock basis, the shareholder starts with their initial capital contribution to the S corporation or the initial cost of the stock they purchased (the same as a C corporation). That amount is then increased and/or decreased based on the flow-through amounts from the S corporation. An income item will increase stock basis while a loss, deduction or distribution will decrease stock basis.


A shareholder's stock is increased by (using 2011 Form 1120S Schedule K-1 line items):
























Schedule K-1
1. Ordinary incomeLine 1
2. Separately stated income itemsLines 2 - 10
3. Tax exempt incomeLines 16a & 16b
4. Excess depletionLine 15c

A shareholder's stock basis is decreased, but not below zero, by.


 




























Schedule K-1
1. Ordinary lossLine 1
2. Separately stated loss itemsLines 2 - 12d
and 14l, 14m
3. Nondeductible expensesLine 16c
4. Non-dividend distributionsLine 16d
5. Depletion for oil and gasLine 17r
NPVAdvisor :

.

NPVAdvisor :

I still don't see you coming into the chat here, ... I'll move us to the "Q&A" mode ... Maybe that will help

NPVAdvisor :

(We can still continue a dialogue there, just not in real time chat as we can here)

NPVAdvisor :

Be sure to let me know if you have any questions at all...

NPVAdvisor :

Lane

Customer:

Thanks. One more quick one. The basis for one of the owners is a negative(loss). However I notice on the basis statement that the loss can be carried forward, which is no problem. However, on thier K-1 line 1 only shows the loss and no reference to the not being able to take the loss in the current year because of a negative basis. When I do the personal return, is this just something I need to remember, or is there something on the K1 that would signify this person has a negative basis.

NPVAdvisor :

ahh there you are... yes let me read this one

NPVAdvisor :

Good question .. no you'll just have to remember (or ideally it would be carried in the capital accounts on the books)

NPVAdvisor :

Here's an excellent article on this: http://www.journalofaccountancy.com/issues/2012/jan/20114319.htm

NPVAdvisor :

As they say, Often, the task of tracking basis is neglected because, when a profitable company makes only minimal distributions, the number simply doesn’t matter—until a major change happens, such as a change in the shareholder’s ownership or the end of the company’s life. When individuals embark on an investment or business venture, they often don’t think about what happens when the venture is over. Unless the tax accountant preparing the shareholder or company tax returns has the foresight to begin and maintain the basis calculations, piecing stock basis back together is like reconstructing a mosaic without all the pieces—it’s tedious, often difficult and sometimes nearly impossible. CPAs can help their shareholder clients avoid this mess by tracking basis from day one or as soon as they realize that their clients’ basis records are lax.

Customer:

I agree. My clients dont understand basis, but as time goes on, they will. Thiis is thier first year, so I will be tracking basis each year. I was just thinking the K1 would show they were not alowed the loss. But I will remember.

Customer:

Thank you for you help

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3887
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 8 other Tax Specialists are ready to help you
Expert:  Lane replied 11 months ago.

Thanks for the rating Paul.

Sounds like they could be good ongoing clients.

(Might be stating the obvious here, but) maybe sitting down and educating them a little, say, on the value of leaving in a some for future tax benefits, taking more as salary, or at least understanding where it's going, might insulate them as clients or get them to talk you up as being one who provides value-added.

If you'd like to work with ME again just say "For Lane only," at the beginning of your next question.

Regardless, thanks again!
Lane

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