M - 5 - S Corporations

Question 1

What is the rule for fringe benefits for an S corp?

Answer 1

Shareholders owning 2% or less, or employees that get fringe benefits are tax deductions to the s corp. If they own more than 2% than it is not, unless it is included on their W-2.

Question 2

For S corps, how is their tax basis calculated? Can the basis go below zero?

Answer 2

The tax basis consists of stock and debt basis. Debt basis is loans from the shareholder.

No, you need enough basis to take the losses.

Question 3

When calculating basis for the S corp shareholder, do you have to add and subtract any separately stated items?

Answer 3

Yes

Question 4

For s corps, if you zero out your debt and stock basis, which basis gets reinstated first? How long can you carryforward the loss?

Answer 4

Debt, you can carry them forward forever. Unless the shareholder sells their interest, then they lose that loss.

Question 5

For S corps, can distributions reduce the AAA to a negative balance?

Answer 5

No