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Need Some Deductions for 2011?
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Updated for 2011
Business Structures
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S-corporation Capital Accounts
Income, losses, and other items, are passed-through an S-corporation to each shareholder according to his/her percentage of ownership in the corporation.
Each shareholder's ownership percentage is reflected in his/her own individual capital account (e.g., Jack Jones, Capital) which is set up after the S-corporation is formed.
Each shareholder's capital account must be maintained accurately in order to allow for an accurate allocation to each shareholder of all pass-through items.
Capital accounts:
- Initial basis in your stock: When an S-corporation is formed, each investor will generally contribute money and property to the corporation in return for stock.
- A capital account is set up for each shareholder (John Smith, Capital, Jack Jones, Capital, etc,)
- Each shareholder's initial stock basis equals his/her initial investment.
- Adjusted basis in your stock: After the initial investment is made, each shareholder's capital account may be adjusted up or down for certain items (e.g., income, losses, distributions, etc).
- The remaining balance represents the shareholder's adjusted basis in his/her stock.
Example:
- You invest $10,000 for 100 shares of stock
- Your friend Jack invests $10,000 for 100 shares of stock
- Each of you is a 50% owner.
- At the end of the tax year the corporation has $50,000 of net income
- You and Jack each have $25,000 of taxable income
- Schedule K-1 would be issued to you and Jack after the end of the tax year showing the allocation.
- You and Jack report your $25,000 on Schedule E
Next:
S-corporations: Becoming and S-corporation; Steps to Becoming an S-corporation; Filing Deadlines; Qualifying for S-corporation Status
Related Links
- What Are At-Risk Rules?
- Passive Activity Rules
- Your S-corporation Tax Basis
- Your S-corporation Stock Basis
- Adjusting Your S-corporation Stock Basis
- Why Annual S-corporation Stock Basis Adjustments Are Made
- Your Loan Basis
- Borrowed Funds Used in the Business
- Adjusting Your Loan Basis
- Your S-corporation Loan Basis
- Borrowed Funds Used in Your S-corporation
- Reducing Your S-corporation Tax Basis In the Correct Order
- Restoring Your S-corporation Tax Basis In the Correct Order
- Allocating S-corporation Losses to Shareholders
- How S-corporation Shareholders Claim a Loss
- S-corporation Health Insurance Premium Deduction
- Sole Proprietorship
- Partnership
- C-corporation
- Limited Liability Company (LLC)
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