S-corp stock sale - basis schedule adjustment?

Technical topics regarding tax preparation.
#1
kathyt  
Posts:
445
Joined:
21-Apr-2014 7:42am
Location:
Lake Charles, LA
S-corp shareholder sold half of his stock to another existing shareholder. Do I need to make any adjustments to the basis of the shareholder's stock on the basis schedules that go with the tax returns? Shareholder 1 initially purchased 20 shares @ $2,000. This year shareholder 1 sold 10 Shares @ $4,000 to Shareholder 2. The sale did not run through the corporation as it's just between the 2 shareholders, so do I need to adjust the basis schedule? If so by how much, do I lower shareholder's one stock basis by $2,000 a share (the original amount that is on the books when they organized) and increase shareholder 2 by the same amount; or do I use the $4,000 per share that was the price of the sale?
 

#2
sjrcpa  
Posts:
6477
Joined:
23-Apr-2014 5:27pm
Location:
Maryland
Selling shareholder's basis gets reduced by the basis of the shares sold - which is not their original cost.
Buying shareholder's basis gets increased by the price paid for the shares purchased.
 

#3
kathyt  
Posts:
445
Joined:
21-Apr-2014 7:42am
Location:
Lake Charles, LA
So if the seller's basis is $20,000 before the sale and he sold half of his shares for $30,000 - are you saying I reduce it by $30,000? Can he have negative basis? Sorry I've never done this before I appreciate your help.
 

#4
Posts:
438
Joined:
31-Dec-2020 11:31am
Location:
MN
If seller's basis before the sale is $20,000 and half the shares were sold for $30,000, then sales price would be $30,000 and basis would be $10,000 ( 50% of $20,000).

Seller's basis schedule would show a reduction in basis of $10,000 related to the shares sold. $10,000 of basis would remain.

Seller would show sale of S corp stock on Schedule D of seller's personal tax return.

Buyer would have an increase on their S corp basis schedule of $30,000.
 

#5
sjrcpa  
Posts:
6477
Joined:
23-Apr-2014 5:27pm
Location:
Maryland
I was pointing out that $2,000 original purchase price of S Corp shares is most likely not the basis on the date the S Corp shares are sold.
 

#6
kathyt  
Posts:
445
Joined:
21-Apr-2014 7:42am
Location:
Lake Charles, LA
So on the Corporate tax return (I don't prepare either of these 2 shareholder's personal returns) I add to the basis of the buyer the amount he purchased it for (30k) and on the seller basis schedule I decrease it by the basis in his (10k)? Wouldn't that throw the balance sheet out of balance? I really appreciate your time to answer - my brain is so fried on top of all of the COVID related issues about 99% of all the tax returns I have done have had major hurricane damage so everyone has a casualty issue to deal with on the tax return and I am mentally drained.
 

#7
sjrcpa  
Posts:
6477
Joined:
23-Apr-2014 5:27pm
Location:
Maryland
The basis schedule is independent of the Balance Sheet. This sale has no effect on the balance sheet since it took place outside of the S Corp.
 


Return to Taxation



Who is online

Users browsing this forum: dellpaul, Google [Bot], Google Adsense [Bot], JoJoCPA, Kendrick, KoiCPA, MAPCPA60, mariaku, Nightsnorkeler, Nilodop, rbynaker, sjrcpa, Wiles and 154 guests