S Corporation is a fluid number and it changes as a result of income or loss, distributions taken, etc. It is imperative that you maintain your basis in your S Corporation because it affects your ability to deduct losses on your personal return and it will become important when you finally sell or dissolve your corporation.
Typically, stock basis in an S corporation begins with the capital contribution you make to get the company started. At the end of each taxable year, your stock basis is adjusted to reflect your business’s operating results. After your stock basis reaches zero, you may be able to deduct additional losses, up to the extent of your debt basis. However, once your stock and debt basis are both reduced to zero, losses incurred are suspended, and you get no current tax benefit. Contact us if you’re in this situation. We can provide a solution and guide you through the rules.
Call us today to set up an appointment to see if your S Corporation basis is up to date and if it affects your ability to take a loss on your personal return.