In computing stock basis, the shareholder starts with their initial capital contribution to the S corporation or the initial cost of the stock they purchased (the same as a C corporation). That amount is then increased and/or decreased based on the pass-through amounts from the S corporation.

How do distributions affect basis?

An income item will increase stock basis while a loss, deduction, or distribution will decrease stock basis. NOTE: Only non-dividend distributions reduces stock basis, dividend distributions do not.

What is adjusted basis at beginning of year?

The adjusted basis at the beginning of the year is the ending adjusted basis from last year reduced by loss allowed in the previous year. In the initial year, basis is equal to the adjusted basis of property contributed to the partnership, plus any gain recognized on the contribution of property.

When do s Corp shareholders receive a K-1 form?

When an S corporation files 1120S, which is a tax return, every single shareholder will receive a K-1 form. The purpose of the K-1 form is to show profits, deductions, and losses distributed to a shareholder. The K-1 does not indicate the amount of the distribution that is taxable. This amount depends on the stock basis of the shareholder.

What does the K-1 say about stock and debt basis?

The K-1 does not state the taxable amount of the distribution. The taxable amount of distribution is contingent on the shareholder’s stock basis. It is not the corporation’s responsibility to track a shareholder’s stock and debt basis; rather it is the shareholder’s responsibility.

How does the K-1 show the taxable amount of a distribution?

The K-1 shows the amount of non-dividend distribution the shareholder receives; it does not state the taxable amount of a distribution. The taxable amount of a distribution is contingent on the shareholder’s stock basis.

How to edit K-1 items affecting shareholder’s?

If the initial K-1 entry was previously keyed in, double click on the entry in the K-1 pick list. After entering all of the information required on the K-1 Heading Information screen, select ‘OK’ which will bring the user to the K-1 1120S Edit Screen.