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Good S-Corp Basis Example

Posted 3/1/2017

The S-Corp Stock Basis issue is not only a situation of losses, but an issue with the Code Section 179 write-off of up to $500,000 of equipment purchase,  If the Corporation borrows $500,000 to purchase assets and then elects to write-off the full amount in order to reduce a $500,000 profit, then the Corporate bank account can be cash rich yet no tax profit in which to declare a dividend.  A distribution then translates into a return of capital until exhausted and then a gain on the stock.  At this point should the corporation have a loss, the shareholder has no stock basis to declare the loss as described in the article below.  The S-Corp can not be managed solely by the bank balance.