How to calculate/find my adjusted basis? Do I use the Shareholder Basis Worksheet information to calculate? I have a loss on my K-1 Ordinary business income.

[Anonymous]

Turbo Tax is trying to have me calculate this using the simplified method. I haven't filled this information in before.

[ToddL99]

Generally speaking, your adjusted basis for tax purposes is what you paid for the interest plus reported income less reported losses plus any capital contributions you might make less any distributions you receive.

From Publication 541 (03/2021), Partnerships:

The basis of an interest in a partnership begins with what they paid for the interest and is increased or decreased by certain items.

Increases.  A partner's basis is increased by the following items. 

• The partner's additional contributions to the partnership, including an increased share of, or assumption of, partnership liabilities.

• The partner's distributive share of taxable and nontaxable partnership income.

• The partner's distributive share of the excess of the deductions for depletion over the basis of the depletable property, unless the property is oil or gas wells whose basis has been allocated to partners.

Decreases. The partner's basis is decreased (but never below zero) by the following items. 

• The money (including a decreased share of partnership liabilities or an assumption of the partner's individual liabilities by the partnership) and adjusted basis of property distributed to the partner by the partnership.

• The partner's distributive share of the partnership losses (including capital losses).

• The partner's distributive share of nondeductible partnership expenses that are not capital expenditures. This includes the partner's share of any section 179 expenses, even if the partner cannot deduct the entire amount on his or her individual income tax return.

• The partner's deduction for depletion for any partnership oil and gas wells, up to the proportionate share of the adjusted basis of the wells allocated to the partner.

• A partner’s distributive share of foreign taxes paid or accrued by the partnership for tax years beginning after 2017.

• A partner’s distributive share of the adjusted basis of a partnership’s property donation to charity.

Here is the Worksheet for Adjusting the Basis of a Partner's Interest in the Partnership.

(For S-corporations, see S Corporation Stock and Debt Basis)

[Anonymous]

@ToddL99 

In this case, I'm the single shareholder. So am I right to understand that my investment is my share (100%) of the company on January 1 of the tax year (meaning cash value), less the company losses in the tax year, and plus any company gains in the tax year?

• I have not made any personal loans or added investments. The only changes are revenue and payroll. No distributions.

So in this simplified case is the adjusted basis the cash value of the company for 1 share on December 31 of the Tax Year? 

It's all the language context flipping that makes this hard for me to understand, e.g. is interest the same as share and not the same as the interest on a mortgage?

[ThomasM125]

Your ownership interest in the business and interest expense are totally different.

Your beginning interest would be the value of what you contributed to the company. For instance, if you took $10,000 out of your personal savings and opened up a company bank account and deposited the $10,000 into it, then $10,000 would be your beginning basis (interest in the business.)

To that you would add additional contributions you made to the business and income from the business you included in your personal income on your tax return, and you would deduct losses from the business you deducted on your personal tax return. 

In it's simplest form, that is how you would calculate your basis.

[Anonymous]

Then I was right with my original assessment during preparation regarding personal investments at risk and investments. Turbo Tax was just asking again in a way that made me doubt my reasoning.

The ownership share, is just the value of the ownership and doesn't play into the adjusted basis. I have not made any additional investments from personal funds (eligible claim value). There have been no distributions that would provide recovery of that investment (reduction in eligible claim value). And the revenue generated has been from services not personal funds.

The loss is not greater that the share/business value. And this has no bearing on the calculation other than to say the business is in not in debt. If I were to take any of this value it would be a distribution that would count against the investments.

So because I have made no personal investments, I have not added to the value of the business, there is $0 to use for evaluation of the deduction. $0 (max deduction) of the loss can be claimed.

Do I have that right?

Thanks for helping simplify and rationalize this.

[cur1ous]

Any answer to this question (here or elsewhere)? Appears to be well presented, and likely frequent.  

[RobertB4444]

@cur1ous  It is well presented - so is @ToddL99 's answer, posted above.  The basis that you have in a company (your interest in a company) is what you paid initially for the investment plus income minus losses minus any money you take out for yourself.

@ToddL99 has more detail above.

[cur1ous]

Hi @RobertB4444, so in practical use, does @Anonymous have it right (above)? Thanks 

[RobertB4444]

@cur1ous  Yes, in practical terms your ownership percentage is used only by the partnership to figure your value and costs as part of the partnership but not in figuring out anything related to your basis calculation.