Over the past few years I've spent weeks studying S-Corp functionality, tax and basis. I want to verify that I'm understanding this correctly.
The S-Corp has performed poorly posting losses and causing complete loss of basis (stock and debt).
Within one tax year, if you put in $1000 capital and pull it back out, you're not going to have any tax consequences, correct?
However, if you put in $1000 capital in one year and lose basis at the end of the year, you're not getting that back out without tax consequence, correct? If I understand correctly, to increase basis to be able to pull that $1000 back out in a following year, you need to make a profit. That profit will be taxed (thought not as wage), correct? Similarly with a loan, to pay it back without it being called a wage, you need basis; that basis would come from profit which would need to be taxed.
I realize this is a generic question with little specifics but I'm trying to solidify a broad understanding of S-Corps. Let me know if I'm missing something big here.
Thanks
The S-Corp has performed poorly posting losses and causing complete loss of basis (stock and debt).
Within one tax year, if you put in $1000 capital and pull it back out, you're not going to have any tax consequences, correct?
However, if you put in $1000 capital in one year and lose basis at the end of the year, you're not getting that back out without tax consequence, correct? If I understand correctly, to increase basis to be able to pull that $1000 back out in a following year, you need to make a profit. That profit will be taxed (thought not as wage), correct? Similarly with a loan, to pay it back without it being called a wage, you need basis; that basis would come from profit which would need to be taxed.
I realize this is a generic question with little specifics but I'm trying to solidify a broad understanding of S-Corps. Let me know if I'm missing something big here.
Thanks
Statistics: Posted by eskimoquin — Sun Mar 17, 2024 2:41 am — Replies 1 — Views 364