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The IRS requires that each individual taxpayer must keep…

The IRS requires that each...
The IRS requires that each individual taxpayer must keep track of their overall basis of interest in each S corporation every year. TaxAct does not support the basis calculations when computing allowable losses from each Schedule K-1 (1120S).
This is the warning from Taxact.How do I keep track of overall basis of interest in S corp?
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Answered in 1 minute by:
3/8/2018
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,628
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

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.

I’m reading your question now.

Bear with me a moment while I type up my response.

….

Then if you have further questions we can go from there.

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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.

...

There are several worksheets out there that can help. Let me see what I can find.

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By the way, looking at the K-1 is also a good way to do this:

....

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

Schedule K-1

1. Ordinary incomeBox 1

2. Separately stated income itemsBoxes 2 - 10

3. Tax exempt incomeBoxes 16A & 16B

4. Excess depletion Box 15C

...

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

Schedule K-1

1. Ordinary lossBox 1

2. Separately stated loss itemsBoxes 2 - 12O
and 14L, 14M

3. Nondeductible expensesBox 16C

4. Non-dividend distributionsBox 16D

5. Depletion for oil and gas Box 17R

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You might find this helpful (attached)

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Customer reply replied 4 months ago
My S-corp has never earned any income. All losses. How do I calculate the base then?

Did you contribute capital at the outset?

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Customer reply replied 4 months ago
What does it mean capital? I always have the checking and savings account. I do not think I contribute capital to it at all. Does it mean that I can not deduct at all?

If you haven't either contributed capital or lent the S-Corp a shareholder loan, your basis is still zero (basis doesn't go below zero).

...

And you can't actually use the loss, becasue you have no basis to use it against.

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Customer reply replied 4 months ago
What's qualified as contributed capital?
Customer reply replied 4 months ago
I have spent plenty of money in the business. But I am not sure how to calculate what is contributed capital.

Property that you contribute to the S-Corp. Under property law cash is property ... but it could also be equipment, real property (real estate), etc.

...

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Is the money that was spent out of pocket? or was it from the gross income of the business

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Customer reply replied 4 months ago
Money out of pocket.
  • Initial basis in your stock: When an S corporation is formed, each investor will generally contribute money and/or property to the corporation in return for stock.
    • A capital account is set up for each shareholder (***** *****, Capital, ***** *****, Capital, etc,)
    • Each shareholder's initial stock basis equals his initial investment.
  • Adjusted basis in your stock: After the initial investment is made, each shareholder's capital account may be adjusted up or down for certain items (e.g., up for income items, down for losses, distributions, etc).
    • The remaining balance represents the shareholder's adjusted basis in his stock.
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Customer reply replied 4 months ago
Also from the gross income.

The money out of pocket (that is over and above the gross receipts of the business) can be considered as capital.

...

But if gross revenues were, say, 1000 and expenses were 1000, then the expenses were paid by the inflows, by the gross sales of the company ... in THIS example you have no profit and no loss,

...

Any money you contributed above that, is capital ... (meaning that even after breaking even, there would still be money in the S-Corp's bank account)

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Customer reply replied 4 months ago
OK. Tku.

You're very welcome ... Your positive rating … (by using those the stars or faces on your screen, and then clicking “submit”) …is thanks enough!

That's the only way I'll be compensated by JustAnswer for the work here

...

Thank you,

Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,628
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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