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I sold my LLC subchapter S this year --how do i calcuate the…

i sold my LLC subchapter...
i sold my LLC subchapter S this year --how do i calcuate the capital gain or loss? and where does that information go on my personal tax return
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3/11/2018
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,026
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.

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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An S-Corp can be sold either in an asset sale or a stock sale, unde the tax code.

...

If you didn't allocate different portions of the sales/purchase price to the various asset classes (and both seller and and buyer complete Form 8594, Asset Acquisition Statement Under Section 1060, (both buyer and seller treating the allocation of purchase the same way), then you have a stock sale here.

...

In a stock sale you get the lower long term capital gains rates on the entire sales price and the buyer steps into your shoes as the owner.

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This is a private transaction between two individuals, which you'll report on for 8949, which feeds into schediue D (capital gain or loss)

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Capital gain = sales price minus your basis in the S-Corp.

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Your basis is something that you (or your accountant) should have been tracking since your first contribution of capital to the corporation.

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See this from IRS:

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"Importance of Stock Basis

It is important that a shareholder know his/her stock basis when:

  • The S corporation allocates a loss and/or deduction item to the shareholder.
    In order for the shareholder to claim a loss, they need to demonstrate they have adequate stock and/or debt basis.
  • The S corporation makes a non-dividend distribution to the shareholder.
    In order for the shareholder to determine whether or not the distribution is non-taxable they need to demonstrate they have adequate stock basis.
  • The shareholder disposes of their stock.
    As with any asset, including C corporation stock, when the asset is sold or disposed of, basis needs to be established in order to reflect the proper gain or loss on the disposition."
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Every year your basis is increased by contributions, decreased by distributions, increased by profits, decreased bu losses.

...

IRS provides this way of looking at your K-1 over the years if you need to reconstruct that basis (as so many do at sale time)

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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 depletionBox 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 gasBox 17R

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Customer reply replied 1 month ago
Would my basis be on my balance sheet? I have been doing my returns every year by myself.
Customer reply replied 1 month ago
I use quickbooks
Customer reply replied 1 month ago
it was a stock sale. They bought the stock and assets (inventory and receivables only)

They either bought the stock (which represents ownership in all of the assets and liabilities, or this would be an asset sale).

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You capital account would be a close approximation.

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See this from IRS re: capital account and basis:

...

"

"Capital accounts:

  • 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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If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars on your screen, and then clicking “submit")

That’s the only way JustAnswer.com will credit me for the work.

But again, let me know if you need more here,

Lane

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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,026
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
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Customer reply replied 1 month ago
is this basis found on my balance sheet? like owner's equity?
No. Although Owners equity ... if you haven’t done a good job of tracking your basis is a decent. Approximation
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Customer reply replied 1 month ago
are the 2 forms 8594 and 8949 reported on my personal income tax return? I use turbotax and i am trying to figure out where to input this information thank you

The 8949 IS a part of the return. That's where you report the gain. You might want to consider using the interview (sometimes it's called step by step) method in TUrbotax (rather than the "I'll do it myself," becasue then Turbtax will ask you all of the questions (one of them being, did you sell a business) and generate the appropriate forms.

...

And yes, I believe (haven't used TurboTax for years - I use one of intuit's professional products for clients) that Turbo TAx Business has the 8494.

...

I'm sure that all versions would have the 8949 as that's needed for any capital gain (stocks, land, etc)

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Lane
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