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PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4514
Experience:  35 years tax experience, including four years at a Big 4 firm.
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I am selling an S-Corp for $120k. I have $90k invested in a

Customer Question

I am selling an S-Corp for $120k. I have $90k invested in a loan (or opening balance). What is the proper journal entry to offset the $90k so I don't pay taxes on it?
Submitted: 1 year ago.
Category: Tax
Expert:  PDtax replied 1 year ago.

Hi from just answer. I'm PDtax, and can assist.

Expert:  PDtax replied 1 year ago.

When you sell the s corp, you have 90k in basis in your loan. When you sell, the entry is not made on the books of the corp.

Expert:  PDtax replied 1 year ago.

When you sell, you will release the loan to the corporation as sorry of the sale. You can ask that your loan beer repaid for 90k, then sell the shares for the $30k remainder. You figure your gain or loss on the $30k.

Expert:  PDtax replied 1 year ago.

Please advise if that covers things, or if you need more assistance. Positive feedback is appreciated. I'm PDtax.

Customer: replied 1 year ago.
that is what I thought. But in the company books, should I transfer the loan to Opening Balance Equity (in QuickBooks) and then put the $90k there also, and $30k to Income? I am not sure that is proper. Your thoughts or suggestions?And thanks!
Expert:  PDtax replied 1 year ago.

Hi again. PDtax here.

The only way you can write off the loan to Equity is to exchange the debt for equity on the books. It also means you should execute satisfaction papers for the loan. You need that backup to avoid issues later on. That will create the basis in the shares you are looking for, and you can sell the shares for $120k and the note need not be part of the contract.