Capital contributions by shareholders to the corporation; b.Separately stated income items (whether taxable or not); c. Excess of depletion deductions over basis of property subject to depletion. Non-deductible expenses that are not properly chargeable to a capital account also reduce stock basis; b.The consequences of distributions to the shareholders and the corporation are discussed further.Shareholders in an S corporation must keep careful track of their tax basis.The Timing of Basis Adjustments All basis adjustments are deemed to occur on the last day of the corporation's tax year or on the date the shareholder sells his or her stock, if earlier.
Finally, the tax effect of any distributions the shareholder received during the year is determined.
The amount of the tax basis determines the tax treatment of such items as flow-through losses and corporate distributions.
Many S shareholders have two investments in the corporation - the investment in corporate stock and loans made to the corporation.
What is the January 1, 1993, tax basis for her stock? OPERATINGRESULTS Year Ended December31,1992 Ordinaryincome8,000 Rentalrealestateloss(37,000) Interestincome8,000 Netlong-termcapitalgain22,000 Charitablecontributions(3,000) Section170expense(7,000) Shareholder'sportionofmedicalinsurancepremiums(1,200) Non-deductibleportionofcorporationmealsand entertainmentexpense(6,000) Keypersonlifeinsurancepremiums(9,000) Even though the nondeductible items do not reduce Linda's current taxable income from the corporation, they do reduce her stock basis.
Her current taxable income from the corporation would be 7,700.