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My brother and I started a company in 2011. It was

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My brother and I...

My brother and I started a company in 2011. It was understood that we would take a very low salary while building the company in order to realize the compensation when the technology was sold to a larger company. A large publicly traded corporation offered to by us out via purchasing our shares in the company. We issued these shares to ourselves shorty before the purchase of the company. How do my brother and I figure our basis in the shares sold?

Submitted: 7 months ago.Category: Tax
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12/18/2017
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 7 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,669
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. My name's Lane. ...

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice to clients on three continents since 1986.

If you’ll please bear with me for a minute I’ll type up my initial response, and then we can go from there if you have further questions on this.

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Customer reply replied 7 months ago
Thank you.
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 7 months ago

The answer depends on the entity type.

...

If your business type is C-Corp, the your basis is very simple ... the total of what you've invested.

...

For S-Corps, (a pass-through rather than a separate;y taxable entity such as the C-Corp) it's more complicated.

...

But for the S-Corp generally, it's Capital Contributed (just as with the C-Corp) that first increases basis above zero, the profits increase basis, losses decrease basis, distributions (non-taxable becasue all profit is taxed) decrease basis.

...

Loans from shareholders to the S-Corp also increase basis, but are treated a little differently.

...

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 7 months ago

It's also important to remember that salary for the S-Corp affects basis INdirectly. The salary of the S-Corp lowers it's profits (which increasaes basis).

...

But again, remember that distributions - nontaxable - OF that profit (or of initially contributed capital) lower the basis

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 7 months ago

What's your entity type?

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