S Corp distributions in excess of basis.

Forum|Forum|2 years ago
June 19, 2024
1 reply
38 views

I understand that the shareholder has a L/T cap gain, but I'm confused about how to report this on the books and return. What is the entry on the S Corp books? How do I reclass a shareholder distribution to an income account?

Because if I don't adjust the books, the shareholder is still taking a hit to his capital account for the excess dividends he is paying cap gains on. Is this correct?

ProSeries Professional

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sjrcpa

Level 15

Nothing goes on the corporate books, except the actual amount of the distribution. The distribution reduces Retained Earnings.

On the shareholder's 1040 they report the distributions in excess of basis on Schedule D/8949 as a sale with -0- cost.

The more I know the more I don’t know.

M

mh85251Author

Level 3

My main concern was the fact that doing it as you suggested, results in the shareholder pays tax on the excess distribution, and has a reduction to his basis on the 1120S.

Is the answer that he gets to add the excess distributions (which he paid tax on), to his outside basis? If so, that would result in a reduction to the inside basis, and an addition to his outside basis.

sjrcpa

Level 15

Yes the shareholder pays tax on distributions in excess of basis.

Shareholder's basis is nowhere on the 1120S.

The more I know the more I don’t know.

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