John Farrar

[S&D Associates]

I have a balance sheet for a S Corp. Could you please tell me how to arrive at the S Corp shareholders basis? What lines do I use?

[TAXNJ]

Reference

I have a balance sheet for a S Corp. Could you please tell me how to arrive at the S Corp shareholders basis? What lines do I use?

See TTB section 19. If the accounting of S Corp is beyond your scope of knowledge, you might want to consider getting in touch with an experienced firm.

[TXEA]

A shareholder's basis in an S-corp is not determined from the balance sheet. I suggest reviewing TTB 19; although, keep in mind you will need to know how and when your shareholder client acquired his/her stock. The following items will impact a shareholder's basis and none of these can be determined from the balance sheet:

1. The shareholder purchased stock from another shareholder.
2. The shareholder inherited the stock.
3. The shareholder's spouse is deceased and owned a community property interest in the stock.
4. The shareholder received the stock by gift.
5. The shareholder has incorrectly deducted losses in excess of basis.
6. The shareholder has debt basis (must track loans made to S-corp and payments back to shareholder). Many are unaware a shareholder can recognize gain on debt repayment.
7. The shareholder contributed property to the corporation in exchange for stock.
8. The shareholder was allocated any gain on the sale of property contributed to the S-Corp (i.e., the property was sold).

The correct way to determine S-Corp basis, is to find out first how the shareholder acquired the stock and his/her cost basis in the stock. Then get all the K-1's since the time the stock was acquired and very simply add income allocated to the shareholder, adjust for non-deductible items, tax exempt interest, Section 179, charitable contributions, credits, and distributions (a little harder than this, but this is a start).