Discussion:Shareholder basis Vs AAA balance
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Discussion Forum Index --> Advanced Tax Questions --> Shareholder basis Vs AAA balance
Discussion Forum Index --> Tax Questions --> Shareholder basis Vs AAA balance
| 30 June 2008 | |
| Ok, I am still a little confused. So can a shareholder have stock basis greater than AAA balance due to shareholder having additional paid in capital? To my understanding additional paid in capital does not increase AAA account. But yet it increase the shareholders stock basis.
Example: Schedule L Additional paid in capital 45,468 Retained Earning -22,226 Shareholder basis 23,242 M-2 Beginning balance 9,328 Loss page 1 line 21 (14,414) Other Reduction (1,850) Line 6 combine 1-5 -6,936 Distributions 9328 Balance at year end -16,264
But if you look at the sharholders stock basis it would still have a remainder of 23,242 left. | |
| 1 July 2008 | |
| Yes. I'd rather see the Add'l Pd in Cap as a Shareholder Loan acct. This is counted to compute basis. It's flexible, because the shareholder can get repaid. The Add'l PD in Cap, once on the books can't be reduced, only increased.
Distributions can be made from the AAA if it has a credit balance. | |
| 1 July 2008 | |
| Day one, s/h puts $100 into corp in exchange for common stock. Basis = $100, AAA = $0. Basis and AAA don't start out the same and typically never are the same for one good reason: They are not the same.
AAA is a subset of retained earnings (often but not always equal to R/E). APIC is more closely related to common stock. It has nothing to do with R/E. | |
| 1 July 2008 | |
| So let me recap. So if an S-corp that hasnot been a Corp and does not have AE & P makes distributions then I use the shareholders Stock Basis to compute captial gain/loss and NOT the AAA balance?
Also do I continue to reduce AAA by distributions even if it has a negative balance? Or do I still use zero limitation? Thank you all for you help in this matter. I have been frantically trying to resolve this issue. | |
| July 1, 2008 | |
| The basis is whatever is invested, profits not distributed, and loans from the S/H. Basically. AAA is simply the holding area for undistributed profits. | |
| 1 July 2008 | |
| Feagin, AAA and basis may be the same, but not always. Use basis to determine gains on distributions. Do not reduce AAA by distributions if the balance in AAA is negative or zero. | |
| 1 July 2008 | |
| Ok I am truly getting there. Now just one question remains:
Do I still follow the rule "do not reduce AAA below zero by distributions"?
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| 1 July 2008 | |
| Sorry Riley I was reading this when you posted so I did not get your message until afterwards.
Thanks for the clarification!!! You guys are great!!! | |
