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1120S returns

Calculation of Basis in Stock and Debt

This template is used to adjust an S corporation shareholder’s basis in stock and debt for transactions that occur during the year.
It is the shareholders’ responsibility to keep track of basis.  However, as a practical matter, the practitioner will generally maintain a record of each shareholder’s basis, which is often updated when the Form 1120S is prepared.
An S corporation shareholder’s stock basis is determined at the end of the corporation’s tax year. Stock basis increases when the shareholder buys new shares or contributes capital and when the corporation passes through income. It decreases when the shareholder disposes of shares, when losses or deductions are passed through, and when the shareholder receives nontaxable distributions.
The shareholder can deduct pass-through losses and deductions to the extent that he or she has basis in stock. However, if stock basis has been reduced to zero, the shareholder can deduct pass-through losses to the extent of debt basis. This ability to deduct losses in excess of stock basis can be a powerful incentive for the shareholder to lend funds to the corporation.

Entering Information

All of the information needed to produce the computation is entered on the Input worksheet. The yellow highlighted cells are calculated fields, and no data should be entered in these cells. Gray cells are not calculated fields, but data should not be entered in these cells.

Enter the following information:

  • Shareholder’s name
  • Current tax year (Enter the four-digit tax year, 2015, for example.)
  • Balances at the beginning of the year for both stock and debt basis
  • Percentage of stock sold
  • Adjustment for stock sold during the year (If 100 percent of the stock was sold, this entry is not necessary.  However, if less than 100 percent was sold, you must determine the basis that should be allocated to the shares sold and enter that amount.)
  • Amount that the debt basis has been reduced by post-1982 losses
  • Contributions to capital/stock purchases
  • New loans to the corporation
  • Principal debt repayments
  • K-1 items, as listed on the Input worksheet