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Old 12-05-2017, 02:08 PM
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Join Date: Dec 2017
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S-Corp basis/sale

Hello!
I recently won a lawsuit and the award is I am being bought out of my s corp shares. The total sale is 400K (40K per year for 10 years at 5% interest). My lawyer receives 25% of the award. The buyer would like to date the sale 12/31/16 to simplify accounting. The business lost money in 2016 and in 2017. There are some tax credits such as R&D that continue rolling forward.

Questions:
1. Where can I find my basis on the 2016 1120s?
2. Am I taxed on the portion that goes to my lawyer?
3. Is the 2016 vs 2017 an issue?

Anything else I am missing?

Thank you!



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Old 12-06-2017, 12:23 AM
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Join Date: Oct 2010
Posts: 5,100
1. Where can I find my basis on the 2016 1120s?=======>.In your S corp books; It is your responsibility to know your basis in the S corp.You need to contact a tax pro filing returns for you.The account goes up and down, but can never go negative. When there is a deposit of income, the basis goes up for all shareholders based upon percentage of ownership. When there is a payment of an expense, the basis goes down. When a shareholder contributes money to the company, the basis goes up. When a shareholder withdraws money, the basis goes down. Basis is also decreased by several activities like penalties the company had to pay, section 179 deductions on assets or the non-deductible portion of meals and entertainment


2. Am I taxed on the portion that goes to my lawyer?====.No;you can claim the portion going to your lawyer for tax purposes. I mean No one likes paying legal fees, but tax deductions make them a lot less painful. But personal legal fees are non-deductible, and that makes them the least desirable fees. If you pay legal fees to get divorced or because a family member sues you for slander, your legal fees are purely personal and non-deductible. So distinguish purely personal expenses from investment expenses.say foir example, Legal fees paid to help your business reputation could be adeductible business / investment expense. Business legal fees are the best, for they are fully deductible by everyone: corporations, LLCs, partnerships and even proprietorships.


3. Is the 2016 vs 2017 an issue?======>then I guess in 2016 ereturn, you need to recor income as it?s received and expenses as they?re paid.

Anything else I am missing?



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