How To Calculate Basis For S Corp

Basis Calculation Formula:

\[ Basis = Initial Investment + Income - Distributions - Losses \]

Initial Investment:

Income:

Distributions:

Losses:

Basis:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What Is Basis For S Corporation?

Basis represents a shareholder's investment in an S corporation for tax purposes. It tracks the shareholder's economic interest and determines the tax treatment of distributions and losses.

2. How Does The Calculator Work?

The calculator uses the basis calculation formula:

\[ Basis = Initial Investment + Income - Distributions - Losses \]

Where:

\( Initial Investment \) — Original capital contribution to the S corporation
\( Income \) — Share of S corporation income allocated to shareholder
\( Distributions \) — Cash or property distributed to shareholder
\( Losses \) — Share of S corporation losses allocated to shareholder

Explanation: The basis calculation tracks the shareholder's adjusted investment in the corporation, which affects the taxability of distributions and the deductibility of losses.

3. Importance Of Basis Calculation

Details: Accurate basis tracking is crucial for determining whether distributions are taxable, whether losses are deductible, and for calculating gain or loss on disposition of S corporation stock.

4. Using The Calculator

Tips: Enter all amounts in dollars. Initial investment, income, distributions, and losses should be positive numbers representing the shareholder's share of each item.

5. Frequently Asked Questions (FAQ)

Q1: Why is basis important for S corporation shareholders?
A: Basis determines the tax treatment of distributions and limits the amount of losses shareholders can deduct on their personal tax returns.

Q2: What happens if distributions exceed basis?
A: Distributions in excess of basis are generally taxable as capital gains to the shareholder.

Q3: Can basis be negative?
A: No, basis cannot go below zero. Losses in excess of basis are suspended and carried forward to future years.

Q4: How often should basis be calculated?
A: Basis should be calculated annually, typically at the end of each tax year, to track changes from operations and transactions.

Q5: What other factors can affect S corporation basis?
A: Additional capital contributions, loans from shareholder to corporation, and certain tax-exempt income can also affect shareholder basis.