Originally Posted by tjkennedycpa
I recently started an S Corp. in the state of Virginia. I did not have to invest any property or cash contributions to start off, just because I already had a few customers that I would invoice in the first month and already had a computer and software (but again, I am not adding those to the balance sheet). I have no debt basis to begin with either. I am 100% stock owner and my articles of incorporation and stock ledger both show that I value my company at 1,000 shares worth $20.00 par value each. I just set this number based on my own valuation, but again, I did not contribute $20,000.00 to the company to start.
My question is, do I have an initial basis of $0.00 or $20,000.00. I am wanting to start off a clean basis worksheet and didn't know how I should handle the starting basis.
it depedns; it may be $0 or between $0 and $20K or less than $20K or more than $20K
Calculating the S corp shareholder?s basis correctly is important because it measures the amount the shareholder can withdraw or receive from the S corp without realizing income or gain. The shareholder?s basis should reflect the shareholder?s economic investment in the corp. Basis adjustments should be made at the end of each taxable year, taking into account income, distributions and deductions and losses?in the right order. Initial basis is generally the cash paid for the S corp shares, property contributed to the corp; Common basis increases include capital contributions, ordinary income, investment income and gains; common decreases include Sec. 179 deductions, charitable contributions, nondeductible expenses and distributions.Basis adjustments are normally calculated at the end of the corp?s taxable year. First, they are increased by income items; then decreased by distributions; and, finally, decreased by deduction and loss items. The order is important because, if basis is positive before distributions but would be negative if all deduction items were subtracted (however, again, basis cannot be negative), then the excess loss is suspended rather than the excess distributions being taxable.