Answers · S corporations
How Is S Corporation Stock Basis Calculated?
S corporation stock basis starts with investment and is adjusted annually for pass-through items, distributions and other statutory adjustments.
This question is answered in full on the main page for it.
How it works
The rule, and what it turns on.
Basis limits loss deductions and determines distribution taxability. Form 7203 can be required in specified circumstances.
Example
Beginning basis $20,000 + $50,000 income - $25,000 distribution - $10,000 losses = $35,000, assuming statutory ordering and no other items.
Common mistakes
What we see go wrong, and what we do instead.
- Using book equity as tax basis.
- Allowing basis below zero.
A better approach
- Maintain basis schedules every year even when no loss is claimed.
Authority
Where this comes from, so you can check it.
IRC §§1366(d), 1367 and 1368; Form 7203 and instructions; IRS S Corporation Stock and Debt Basis guidance.
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
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