How do you treat an S Corp distribution in excess of basis?

How do you treat an S Corp distribution in excess of basis?

Important Things You Should Know:

1. A non-dividend distribution in excess of stock basis is taxed as a capital gain on the shareholder’s personal return.
2. Non-deductible expenses reduce a shareholder’s stock and/or debt basis before loss and deduction items.

How do you report distributions in excess of basis?

Yes, if you received a distribution that was more than your adjusted basis, you have taxable income. In most cases, this is a long-term capital gain, which is reported on Schedule D (as a sale with no basis).

How do you report distributions in excess of basis 1040?

If a distribution exceeds the basis that the taxpayer has in the s-corporation, the difference will be carried to Form 8949, Part II. Box F is checked and the description shows as “Excess Distribution” with the name and EIN of the s-corp listed: Review Wks K1S Detail Adj Basis in view mode for details.

Where do you report distributions in excess of basis on 1120s?

If these distributions exceed the basis of the taxpayer’s stock, the excess is treated as capital gain from the sale or exchange of property and is reported on Form 8949 and Schedule D (Form 1040).

Are S corp distributions in excess of basis taxable?

S corporations generally make non-dividend distributions, which are tax-free, provided the distribution does not exceed the shareholder’s stock basis. If the distribution exceeds the shareholder’s stock basis, the excess amount is taxable as a long-term capital gain.

How do distributions work in an S corp?

Distribution from S Corporation Earnings S corporations, in general, do not make dividend distributions. They do make tax-free non-dividend distributions unless the distribution exceeds the shareholder’s stock basis. If this happens, the excess amount of the distribution is taxable as a long-term capital gain.

Do S Corp distributions count as income?

When an S Corporation distributes its income to the shareholders, the distributions are tax-free. Distributions may include amounts that have been taxed in a prior year (as pass-through income), amounts that are taxed in the current year, and/or amounts that have not been taxed at all.

Does recourse debt give you basis for distributions?

Recourse liabilities are those that any partner bears the economic risk of loss with respect to the liability. Nonrecourse liabilities can provide basis for distributions, but generally do not provide basis for purposes of the at-risk rules.

How do distributions work in an S Corp?

Can I withdraw money from S Corp?

When you’re taking money out of an S Corp other than your salary, you can set up a line of credit between you and your business. Then, you’ll take cash out as a loan against that line of credit. If Uncle Sam recharacterizes your loan, you’ll have to pay income taxes on it just as you would a distribution.

How are S Corp distributions paid?

Here’s a simple strategy that you can try, and it’s called the 60/40 rule:

1. Pay 60% of your business income to yourself in the form of employee salary.
2. Pay yourself 40% of your business income in the form of distributions.

When can I take distributions from my S corp?

Distributions of previously taxed income from an S-Corporation are not subject to income tax if you have the basis in your stock to cover them. However, they should not be taken before the S-Corporation has paid you reasonable wages (subject to FICA and Medicare Tax) for your services.

How to enter S corporation shareholder basis worksheet?

The Lacerte S Corporation program generates the Shareholder Basis Computation worksheet. Below are instructions on how to enter the information from the S Corporation worksheet into the 1040 K-1 input screens; The Following Line Numbers Refer to the Line Numbers on the Shareholder Basis Computation Worksheet that the S-Corporation Program Produces.

How is the basis of a S corporation adjusted?

The basis of S corporation stock is adjusted on an ongoing basis (unlike for a “C” corporation, where stock basis remains constant unless additional capital contributions are made or stock is sold). A shareholder’s beginning basis in S corporation stock is the original capital contribution.

Is the stock and debt basis of a corporation taxable?

The taxable amount of a 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 but rather it is the shareholder’s responsibility.

Why are shareholders required to compute both stock and debt basis?

S Corporation Shareholders are Required to Compute Both Stock and Debt Basis The amount of a shareholder’s stock and debt basis in the S corporation is very important. Unlike a C corporation, each year a shareholder’s stock and/or debt basis of an S corporation increases or decreases based upon the S corporation’s operations.