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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12697
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have bought out my 51% partner in my very very small S corporation

Customer Question

I have bought out my 51% partner in my very very small S corporation for $41,000. This happened on November 23rd and the bank was closed. I am now operating as the sole shareholder but a new shareholder is coming on board in January 2016.
my question is do I have to send in final accounts to IRS on November 23rd so that I can give my ex partner a K-1 upto the day he needs, also is there any capital gains tax to pay on the distribution to my partner. also what are the bookkeeping entries to accommodate the distribution....is it charged to the partners capital account as a distribution....and if there is any capital gains ..who pays it
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.
Hi,...No, this is a private transaction between you and the partner. This does not affect the S-Corp at all (other than who the owner now is)....The gain that the shareholder from whom you purchased will recognize depends on that individual's basis IN the S-Corp....You will report (nothing about the buyout transaction, again, a private personal transaction between you and him/her) only the operational results for the shareholder up to the point in time that then individual was no longer a shareholder....Be sure to check the Final k-1 box for the shareholder who sold his/her shares....If profits were, for example, 100,000 and the shareholder's distributive share is 50%. IRS allows any reasonable apportionment (most common is use days as a shareholder / 365 x .5 or profits) on the K-1....Again, there are no bookkeeping/accounting entries on the S-Corps books. You WILL need to change the shareholder of records on the S-Corp ledger....And again, the gain/loss recognized by the selling shareholder will be 41,000 - that shareholders basis (flows from the 8949 to the schedule D to the 1040 for the selling shareholder)
Expert:  Lane replied 1 year ago.
Transferring one partner's shares to another for an agreed-upon price should include the use of a written stock purchase agreement that details the terms of the sale....Once the agreement is executed and the payment exchanged, the stock transfer should be recorded in the S corporation's stock ledger....If the S corporation has issued paper stock certificates, the withdrawing stockholder should sign the transfer certification on the back, and hand them over.
Expert:  Lane replied 1 year ago.
I hope this has helped....Please let me know if you have any questions at all....If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the faces or stars on your screen, and then clicking “submit I know it takes an extra step, but JustAnswer won’t credit us for the work until you rate....Thank you!Lane……I hold a law degree (JD, Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security/Medicare, estate, corporate, both for-profit and non-profit, and tax advice, since 1986.