Discussion:S-Corp Shareholder Basis
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| 14 March 2007 | |
| S-Corp Shareholder Basis
Just typing this to make sure I have a clear understanding of how this works, and how it's reported at the end of the year. Each shareholder contributes either cash or an asset to the company, which in result raises their "basis". They pay themselves through PR for a salary if they're working for the company This is the part that gets me confused, let me know if I'm right: They're allowed to withdrawal UP to what their basis is (thus reducing their basis) and thats "tax free." Anything OVER that amount, would be counted towards dividends paid to that person, right? After said expenses are income are counted for on 1120S, profit/loss gets distributed to shareholders on K1 | |
| March 14, 2007 | |
| Kinda sorta. They can usually withdraw amounts up to their basis (except for capital stock). Beyond that, you've got to either pick up cap gain income or create a NR-S/H which will get repaid from future profits that are more than what they take out in cash. And the profits do increase basis. Losses don't reduce basis, they go to AAA, and need future profits to wash them out. | |
| 14 March 2007 | |
| *grunt*
ok... i Know theres diff types of stock, capital & common (yet I dont know what the diff yet). So if theres no basis now, any draws are capital gains. What is NR shareholder, and how would you repay that from future profits? (im assuming just cant income made from services and repay that right / or net income from the books would pay NR/SH account? ACKKKKKKKK im confused! lol - AAA? :( muh edumacation continuez | |
| March 14, 2007 | |
| True, GLMP, trying to keep it simple I guess...
OK, XZ...let's do this: Assume they start corp with $1000, earn 20k, but draw out 24k thanks to accrued taxes or loans or something. So they drew more than they made. This is NOT negative basis, but they're upside down for the moment. I create a Note Rec. for the 4k rather than create tax which can never be refunded. Since it's likely that one day, hopefully next year, they can draw out less than they earn in profits, the upside downness can be repaid. So in 07, they earn 30k in profit, but draw 25k. You can then distribute the AAA difference for the 4k out of the 5k to repay the note. 1k remains in AAA and all is well. Don't forget note interest and a 1099INT...and a written note document, which really freaks out the auditors! | |
| 14 March 2007 | |
| So lets say I earned 20K thru W2, put in 1K to my company, and I drew out 24K from the company. I drew out more than what I made, yes. I can make a NR for the 4K of what I drew out more than what I earned, instead of creating a 1099INT for the 4K, yes? (otherwise id get the 4K for 1099INT, right) So then next year I earn 30K, but I drew 25K. I understand how the AAA is setup as a sub-account from RE, just trying to figure out how the diff from 25 from 30K you mentioned on the last 2 sentences gets figured out. | |
| March 14, 2007 | |
| OK, W2 ain't got nuttin' to do with nuttin'. So start over. Back to Go, and go ahead and collect your $200. | |
| 14 March 2007 | |
| now, spend that $200 on going to a class on S corps - will be well worth the $ and time | |
| March 14, 2007 | |
| But the 4k isn't interest, it's cap gain, sch. D on the 1040. And if you do that, you start out fresh for the 2nd year, so when you earn 30k but draw out 25k (not on W2), then you've got 5k basis added that year plus orig 1k for stock, total 6k. No credit given for the 4k that was taxed the previous year. AAA is not a sub of RE. It IS the RE in a S unless there's been a prev. C corp status. | |
| 15 March 2007 | |
| Ok so let me give me this another try: (what CPE courses you guys recommend on corporate taxes btw? or something else?)
I invest $1000 into my company 1/01/06. Throughout 2006, the company's income is say $50K. I have expenses which leaves net income of $10K. If I've withdrawn 15K throughout the year, I can either either give myself 5K of capital gains or as you mentioned make a NR for the 5K and wait until next year and if i dont draw out more than whats left from net income, distribute the AAA diff to repay the note? | |
| 15 March 2007 | |
| Yea I saw that, will look into it. Also looking @ courses offered by Surgent LLC, anyone familiar with them? | |
| 15 March 2007 | |
| YES! w00t I'm happy (for now until something else comes up tomrrow ha!) So now with my example of above, if I'm giving myself 5K capt. gains are those counted as an expense on the 1120S? or will I still have a say... 5-8K on a K1? (depending what the taxable income shows up as on the 1120) | |
| 8 May 2008 | |
| What about this:
I start an S corp with 500.00. Thru the year, the company earns 120K in revenue and incurs 30K in expenses. I take a salary of 60K. Then take distributions of 20K. How is my basis affected and is the distribution taxed? Thanks. | |
| May 8, 2008 | |
| 500+120k-30k-60k-20k=10,500 to start the next year. Distributions are NOT taxed unless they exceed basis. All the profit is tho'. So you pay tax on 120k-30k-60k=30k profit, plus your 60k salary. | |
| 10 May 2008 | |
| So, I don't have a basis until my 2nd year in business(for tax purposes)?
Thanks. | |
| May 10, 2008 | |
| 500 American dollars. Doesn't mean you can't start taking money out as you earn it, but no, basis is what you've invested. What have you invested? 500 bucks. | |
| 11 May 2008 | |
| Ok..so i'll be paying tax on my salary (60K), the profit (30K), and my distributions in excess of my basis which is 19,500 (20,000-500).
Correct? | |
TheTinCook (talk|edits) said: | 11 May 2008 |
| Net income increases basis, so you'd have no distributions in excess of basis. | |
| May 11, 2008 | |
| Get a good tax pro who understands and loves S's and is willing and able to explain them to you. | |
