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Discussion Forum Index --> Basic Tax Questions --> S-Corp Stock Redemption
Discussion Forum Index --> Tax Questions --> S-Corp Stock Redemption
Vitarick (talk|edits) said:
| 17 November 2008
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| 2 Year old S-Corp one owner (husband & wife) invested 50,000 for stock in 1st year and now making a profit. Would like to redeem 10,000 (par $1)in stock at end of 2nd year and take 5,000 in business income on Sched E of Form 1040 out of business profit of 15,000 for the year. Where are these entered on the Form 1120S, Sched K? Normal profit would go on Line 16d as property distributions. How do you separate the non taxable 10,000 and the taxable 5,000? Also, is line 25 on schedule L used for the 10,000? Am I making this too complicated, or is there an easier way to do this?
Would appreciate any help. Thanks
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RoyDaleOne (talk|edits) said:
| 17 November 2008
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| You can not do all of your proposal.
I suggest that you or your client hire a local tax professional with whom to consult.
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JR1 (talk|edits) said:
| November 17, 2008
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| Yep, sounds a whole lot like do it yourself work and you're in muddy waters. Hire a pro. Do it right.
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Kevinh5 (talk|edits) said:
| 17 November 2008
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| I didn't think that VITA allowed volunteers to do business returns because there are so many things to know that a volunteer can't be expected (or counted on) to even have a clue about. Refer the person to a local professional.
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Jbcpa (talk|edits) said:
| 17 November 2008
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| Unless you have more deductions, the taxable income will still be $15,000, even if you redeem some stock. As a matter of fact, the redemption itself could be a taxable event and the taxpayer should document how he arrived at the redemption price (since it is not arm's length transaction). Hire a professional as others recommneded here.
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Vitarick (talk|edits) said:
| 17 November 2008
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| As you all guessed, the question is about my own S-corp and the numbers are hypothetical. I just wanted to know how you go about reducing your stock after you put in a lot of money to start up the corporation. Seems like Return of Capital in the form of stock redemption is a tax free event. The company sells the stock back and reduces E & P and stock basis correspondingly. Am I on the right track. I have always done my own corporate returns, but have not attempted this before. Any takers on advice here before I have to turn to a local pro?
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Jbcpa (talk|edits) said:
| 17 November 2008
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| Cash distribution (to the extent of your stock basis) gives you "money back" without even getting into stock redemption issues.
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CarlLaFong (talk|edits) said:
| 19 November 2008
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| Why bother with a redemption? Why not just make a distribution? It is much simpler and the tax effects are the same. Call your tax advisor to confirm this.
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Douglasholbrook (talk|edits) said:
| 19 November 2008
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| When exactly did S corps start having E & P when they started out as S corps?
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