S-corporation Shareholder’s shares were redeemed effective 12/31/15. His basis was $40,000 and he was paid $90,000 in 2016 per the agreement. Payments happened in 2016 so final K-1 is 2016. He will receive no 2016 K-1 income allocation of S-Corp income. He was also paid another $20,000 for a separate agreement to share profits in 2016.
Question 1 – How is this recorded on the S-Corp? First $40,000 (of $90,000 redemption payment) reduces equity but what about remaining $50,000? Is this $50,000 an ordinary expense for the S-Corp (former shareholder does not get an allocation)?
Question 2 – How does S-Corp report this to the IRS? Someone told me that that redemption of stock from prior firm is not reportable on an IRS form so no 1099 is issued?
Question 3 – How does the shareholder report this? $90,000 of sales proceeds less $40,000 of basis all on Schedule D? Then the $20,000 separate payment is Schedule C income subject to SE tax?
Thanks!
Question 1 – How is this recorded on the S-Corp? First $40,000 (of $90,000 redemption payment) reduces equity but what about remaining $50,000? Is this $50,000 an ordinary expense for the S-Corp (former shareholder does not get an allocation)?
Question 2 – How does S-Corp report this to the IRS? Someone told me that that redemption of stock from prior firm is not reportable on an IRS form so no 1099 is issued?
Question 3 – How does the shareholder report this? $90,000 of sales proceeds less $40,000 of basis all on Schedule D? Then the $20,000 separate payment is Schedule C income subject to SE tax?
Thanks!