1. What is S Corporation Basis?

Basis represents a shareholder's investment in an S corporation for tax purposes. It determines the amount of losses and deductions a shareholder can claim and affects the tax treatment of distributions.

2. How Does the Calculator Work?

The calculator uses the basis formula:

Where:

• \( Initial\ Investment \) — Original capital contribution to the S corporation
• \( Income \) — Share of S corporation income allocated to the shareholder
• \( Distributions \) — Cash or property distributed to the shareholder
• \( Losses \) — Share of S corporation losses allocated to the shareholder

Explanation: The basis calculation tracks the shareholder's economic investment in the corporation, increasing with contributions and income, and decreasing with distributions and losses.

3. Importance of Basis Calculation

Details: Accurate basis calculation is crucial for determining tax-deductible losses, avoiding taxable distributions, and complying with IRS regulations for S corporation shareholders.

4. Using the Calculator

Tips: Enter all amounts in currency units. Initial investment, income, distributions, and losses must be non-negative values. The calculator will compute the current shareholder basis.

5. Frequently Asked Questions (FAQ)

Q1: Why is basis important for S corporation shareholders?
A: Basis limits the amount of losses shareholders can deduct on their personal tax returns and determines whether distributions are taxable.

Q2: What happens if basis reaches zero?
A: Once basis reaches zero, shareholders cannot deduct additional losses. Further losses are suspended until basis is restored.

Q3: How does debt affect S corporation basis?
A: Shareholders can increase their basis by making direct loans to the corporation, which may allow deduction of additional losses.

Q4: When should basis be calculated?
A: Basis should be calculated annually, typically at year-end, to determine loss limitations and distribution taxability.

Q5: Are there different types of basis for S corporations?
A: Yes, shareholders have stock basis and debt basis, each with different rules for increases, decreases, and loss limitations.