http://www.kenniffonline.com/net-profits-today/
S-Corp Investment?
I acquired a 15% interest in an established S-Corp for $50K. This year I received a K-1 for 15% of the net profits. Using Taxcut, this is treated as standard income.
Does my original investment only come into play when the S-Corp is dissolved or I sell my 15% interest in the S-Corp?
For example, 5 years from today, the S-Corp is dissolved and as a result, I receive $20K for my share of the sale of the business’ assets. For that tax year, will I be able to write-off $30K (original $50K investment less $20K)?
Let me lead you on this.
If you invested 50K, and receive 20K 5 years later at the sale, you have a sale for 20k. But your gain or loss on the sale depends on your cost basis, which has to be computed.
Cost basis begins at 50k. To that amount, you would increase it by all the k-1 income items over the years, and decrease it by any losses or dividends received over that period.
Once you arrive at that new basis, you subtract that from your selling price of 20k to determine your gain or loss.
It’s real simple if you’re a tax consultant with 25 years experience. If not, then you might need to buy some face time to figure it out.
As for me, I use a Crystal ball.
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