Jump to content
ATX Community

S-Corporation Sale of Stock


Ryanvv126

Recommended Posts

Is there a section in Form 1120S to put the sale of a stock of one owner? I know this would affect the basis, but is their anywhere else to put it?

Also, on the K-1 input if you bring in a new shareholder during the year, would you have to use the weighted averages to calculate the ownership percentage for that year? I'm guessing so.

Finally, when would you use the Special Allocation Percentages on the K-1 input screen? Just curious. Thanks!

I've been lurking on here for a while and have really seen some great tips and advice.

Link to comment
Share on other sites

21 minutes ago, Ryanvv126 said:

The incoming shareholder bought 25% of the stock from the sole shareholder of the s-corp

The sole Shareholder has a tax issue.  Nothing more in the corp.   Allocate income via percentage for the time before the buy in 250/365x(100%), and the time afterwards 115/365x (75%-25%).  Basic calculation.

If the shareholder then deposited the funds into the biz, that is a loan from S/H. 

If the Corp sold the share to the 25% SH, then you have other issues. 

Rich 

Link to comment
Share on other sites

On ‎3‎/‎13‎/‎2018 at 10:54 AM, Abby Normal said:

I don't do shareholder loans. Always goes is as additional paid in capital.

Why in the world would you show a shareholder loan as paid in capital.  That is what the IRS would prefer.  A shareholder loan can be paid back anytime without question, paid in capital cannot.  A loan can pay shareholder interest, paid in capital cannot.  Why would you ignore the intent of the shareholder?

 

  • Like 4
Link to comment
Share on other sites

Most shareholder 'loans' are not really loans and are totally undocumented, and never repaid. Making them equity allows for stock basis, avoids imputed interest and gains on repayment of principal if debt basis was used for losses. Not to mention having to track debt basis. You put it in as capital, you take it out as distributions. Easy, peasy.

Link to comment
Share on other sites

21 hours ago, Abby Normal said:

You put it in as capital, you take it out as distributions. Easy, peasy.

I think you misunderstand capital distributions.  When you have paid-in-capital, you have added basis to the shares of stock.  Even though it is shown on the financial statement separate from the other basis of stock (because of par value) it is for tax purposes an equal basis addition to the stock (like glue).  If you "take it out" you are actually distributing a fractional share of stock at fair market value, therefore any distribution would require a 1099 to report the FMV which is reported on 1040 Sch-D as capital gain or loss.  Determining FMV my require an outside appraisal.  Shareholder loan is easy, peasy to document and tax free to repay.  Also you may be ignoring the intent of the owner which is not your decision.

  • Like 1
Link to comment
Share on other sites

3 hours ago, Abby Normal said:

I think you misunderstand my clients.

You may be right I don't know your clients, however, they are corporate shareholders and the rules for corporations are the same for all shareholders regardless if it is a C-corp, S-corp, or LLC electing corp status.  Capital distribution is a taxable event.

 

Link to comment
Share on other sites

18 minutes ago, OldJack said:

You may be right I don't know your clients, however, they are corporate shareholders and the rules for corporations are the same for all shareholders regardless if it is a C-corp, S-corp, or LLC electing corp status.  Capital distribution is a taxable event.

 

That is not necessarily true. This topic is specific to S corps, and the S corp distribution rules and taxation of distributions depends on whether the company was formerly a C corp with E&P or if it was an S corp from inception. If formerly a C corp with E&P that convered to S status, the distribution might result in a taxable dividend.  If it has been an S corp from inception, the distribution may well be a tax-free return of basis if it doesn't exceed existing basis, and of course, that includes taking into account the ordering rules of basis changes in the current year. 

  • Like 2
Link to comment
Share on other sites

Hi jklcpa, the distributions we were talking about was paid-in-capital which becomes a part of stock basis rather than income accumulation (retained earnings).  You are correct that distribution of accumulated retained earnings income is a different type of distribution.  Paid-in-Capital is not Retained Earnings.  From a tax standpoint there is no difference in distributing shares of stock or paid-in-capital.  Both are Capital Distributions not distribution of earnings.  S-corp distribution rules only apply to accumulated earnings.

  • Like 2
Link to comment
Share on other sites

  • jklcpa changed the title to S-Corporation Sale of Stock

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Restore formatting

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...