I am a 100% owner of a S-Corp for a number of years now. I pay myself a reasonable wage and pay the remainder of the profits as a 16D distribution.
I noticed that Line H I have never entered any share information. My Articles of Incorporation do state 10k shares. Do I need to be entering 10k beginning and ending of each year?
I'm asking because if I enter 10k shares on line H then TT wants to insert a form 7203 within my 1040. I've never submitted this before. Is the IRS going to raise eyebrows now seeing this for the first time?
This is an IT services company so there isn't much value in the company. Do I need to go back all these years and calculate the basis?
Are the shares reporting on the 1120s K-1 required to be reported? Thank you.
It depends. You may need to include Form 7203 with your S-Corp return if you have:
Form 7203 records stock share basis. You may wish to complete and retain Form 7203 even for years it is not required to be filed, as this will ensure your basis is consistently maintained year after year.
You don't need to file Form 7203 for prior years, as the form reports historical activity to date.
Read more from the IRS here: S Corporation Stock and Debt Basis
This is just a pass through S Corp. My Articles of Incorporation state 10k shares which has never changed and I suspect will never change. I'm not sure they hold any value either, or if they do, who would want to pay for them.
With that knowledge, am I supposed to list the 10k of shares beginning and end of year on the K-1 each year?
By adding the shares info on the K-1 into TT I am confronted with the 7203 and am wondering if this is overkill as, again, do I need to be reporting the 10k shares on the K-1 to begin with?
Yes, report your original shares as the beginning share balance. If nothing changed, the ending share balance would be the same. The share value is equal to your original investment in the S-Corp. The Articles of Incorporation should specify a share value (typically one dollar). The ending value is adjusted for additional investment, distributions, and loans. You may need previous year K-1s to calculate the final share value.
See the IRS Instructions for Form 7203 for more help.
You are not required to include Form 7203 if none of the transactions listed above occurred during the year. If TurboTax is asking you to complete a 7203, you probably reported one of those items.
After further investigation it appears that the trigger is adding K-1 16D will force a Schedule E, Line 28e Basis Computation and then adds form 7203. Whether or not I add my shares quantity, percentage of stock ownership, answer my personally paid medical, and interest income does not force a 7203.
I have always added 16D to TT in the past and have never been asked to file form 7203. I'm not sure where also the K-1 16D affects my 1040 or Schedule E as I still have K-1 17V added which is the sum of my W-2 + OBI.
I presume I can still hand mail in my 1120S along with the K-1 and keep the 16D along with Part 1 D and Part 2 H showing the number of shares beginning and end of 2024? Nothing changed, both still 10k.
Just disregard entering K-1 16D into TT?
Per IRS Instructions for Schedule E Line 28:
If you report a loss, receive a distribution, dispose of stock, or receive a loan repayment from an S corporation, you must check the box in column (e) on line 28 and attach the required basis computation. For more information, see Basis rules for S corporations, earlier.
It is even more confusing. My K-1 Line 1 = Line 16D.
If I enter into TT the K-1 Line 16D minus $1 than my K-1 Line 1 OBI then the Schedule E Line 28e "X" goes away. Then if I go back in there and this time type in the 16D amount which is = to Line 1 OBI, the "X" does not return. So on it's surface it appears to be fine.
The K-1 Line 16D amount is = to the company K-1 Line 1 OBI .
I have never had to "X" Schedule E, Line 28e in all these years and have never filed a form 7203.
Are you suggesting that because I am pulling out the entire OBI as a distribution rather than leaving in my business bank account that I should be check marking Schedule E, Line 28e and filing form 7203 every year? The IRS has never sent me a letter regarding this so this is all new to me. Please advise.