TurboTax

File with experts
File your taxes
Experts at your fingertips

An expert helps with your taxes, or does them for you
TurboTax Expert Full Service

TurboTax Expert Assist

TurboTax Self-Employed
Prior year taxes
File myself
File myself
Do it yourself

We'll guide you step-by-step
TurboTax Do It Yourself

TurboTax Self-Employed

TurboTax Desktop
TurboTax Free

Activate your product

Prior year taxes
Business
Business
Business taxes

Get your T2 corporate return done right, your way
TurboTax Business

TurboTax Business Desktop
Tax situations
Tax situations
Tax situations

Find extra guidance for your big life moves
For investors

For 25 and younger

For self-employed

For new to Canada

For life changes
Resources
Resources
Resources

Explore tax tools, get tips, and read reviews
Personal income tax calculator

RRSP savings calculator

Learning hub

TurboTax support (FAQ)

TurboTax community
Pricing

Level 3

Question

Help with Form 7203 S Corp Shareholder Stock and Debt Basis Limitations

Forum|Forum|4 years ago
March 31, 2022
5 replies
27 views

TurboTax is saying I need to complete Form 7203 - S Corp Shareholder Stock & Debt Basis Limitations, but it doesn't walk me through how to complete it! It just says, here is a link to the form, now complete it by yourself! This is the 3rd tax year for our very small S Corp and my husband and I are the only 2 owners. The reason we have to complete Form 7203 is that we "loaned" our S-Corp funds to get started in 2019 and 2020, and then in 2021, we paid ourselves back (without interest). We have 100 shares of stock at $1 par value, one owner with 51 and the other with 49. Other than the $100 investment of capital stock, we have made no other investments to the S-Corp and we have received no distributions for 2019, 2020, 2021.

1) How do I calculate the basis for each of us?

2) How do I know if to select "Formal note" or "Open Account Debt" for the loan? This was simply an infusion of cash to get us up and running and there was no interest expected or paid.

3) Do I fill out Form 7203 for each of us by using the figures on our K1, or do I need other info from the balance sheet, P&L, etc?

I used TurboTax for Business to create our 1120S and K1s but there is no data in the Partner's Capital Account Analysis section L of the K1.

AliciaP1

Level 13

I'll answer your questions by your numbers:

Your basis calculation represents the value of the stock you own. It is not difficult to do, but it is a running total from day one. Until 2021, it has been each shareholder's responsibility to track their own basis but it was not required to be reported. Please see S Corporation Stock and Debt Basis for details and the method for the calculation.
Since your original intent of the infusion was to pay yourselves back without interest and did not formally document the note and terms, you have "Open Account Debt" that is being paid back.
The link provided above has the information you need to identify the amounts you need for the calculation. Although, your mention of the "Partner's Capital Account Analysis section L of the K-1" references the K-1 for a Form 1065 Partnership Return rather than the K-1 Form 1120-S you would have for an S-Corp. You need to ensure your business has filed the correct returns and elections.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

LorganizedAuthor

Level 3

Thank you @AliciaP1 ,

Is it possible to have a phone call with you? I am willing to pay a fee if necessary so I can properly fill out the Form 7203. I want to make sure I have the basis correct from 2019 to present. I am trying to follow the instructions from the link you provided to create basis for 2019 & 2020 so I can then calculate 2021. However, the shareholder loan part is so confusing!

1) The loan did not affect the S-Corp P&L. It is a balance sheet item, so it's not like the loan increased or decreased the Ordinary business income (loss) that passes onto the K1. If that's the case does it affect my basis? More details are below.

2) In 2019 (our first tax year), we infused cash for start-up expenses. The 2019 K1 does not have a Box H ("Loans from Shareholders"), nor do I see a "Numbered" Box on that 2019 K1 reflecting the loan amount. So for the 2019 basis, do I include the loan in the basis? Does the loan increase or decrease the basis?

3) The 2020 K1 in box H shows "loans from shareholder" with a beginning balance (showing 2019 loan amount) and ending balance (total of 2019+2020 amounts). But again I don't see a numbered Box with the loan amount(s).

4) The 2021 K1 Box H shows a beginning balance and an ending balance of $0, because the loan was paid back to the shareholder in 2021, and that paid back amount is reflected in Box 16E of the K1 "Items affecting shareholder basis. My understanding this loan repayment is what prompted TurboTax for the Form 7203.

5) Based on the helpful link you provided, I think I can figure out where to plug everything but don't know if I should include or what line of the 7203 to include the loans for the 2019 and 2020 basis calculations...

Many thanks, and I would welcome a phone conversation with you if possible!

AliciaP1

Level 13

I'm only available on this forum, but I'll do my best to answer your questions here!

While your loan does not affect the company's P&L, it does affect your basis. The amount you invested as a loan becomes your beginning basis.
Yes, the loan is still your beginning basis even if it wasn't reported as a loan the first year. The ending basis is the loan amount plus any income or less any loss the company reported on your K-1.
Since you invested more (increased your loan amount) in 2020 there should be an increase in your basis for 2020 of that amount as well as any income increase or loss deduction for the year's activities.
The payback of the loan will reduce your basis by the total amount, but only down to $0, your basis cannot be negative. And yes, this is why you have to complete Form 7203 now. You will also report any income increases or loss decreases for the year.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

Marwick3183

Level 2

How do I determine the Stock Block?

AliciaP1

Level 13

A stock block is a group of stocks purchased (or allocated as you have stated) at 1 time. So, in your case, you have 1 stock block. If you had the initial allocation and had then purchased another group later, you would have 2 stock blocks.

See S Corporation Stock and Debt Basis for more details on how to track your basis for the form.

@Marwick3183

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

rachetech

Level 2

@AliciaP1 I am using turbotax business and this question is regarding Part II shareholder debt basis in shareholder basis worksheet.

I have loaned amounts in the range of 5000 to 6000 a year over the last 7 years. There is no special written instrument for these loans and since the amounts are in the range of 5000 to 6000 I am treating these as 7 Open account debts. The shareholder basis worksheet simply says "If more than three debts, see instructions". IRS instruction says "If you have more than three loans, use additional copies of Part II.".

I am trying to figure out how turbotax business supports adding additional part IIs. Although I don't think this is the solution, I tried adding a new shareholder basis worksheet and it says: "NOTE: TO CREATE A NEW SCH K-1, ENTER THE SHAREHOLDER'S INFO ON SCH K-1 WKS" - implying that only one shareholder basis worksheet can be attached to one share holder. So the question is how do I add additional part IIs exceeding three "open account debts" in turbotax business?

bles47

Level 2

I keep getting errors on my 7203 form when I review and go to file my taxes...our S-Corp had a net gain in Part I, but the only place to calculate allowable deductions (e.g., K-1 line 12 code A for charitable contributions) and have the math for the end of year stock basis work is to use lines in Part III. But the errors (cited for Part I lines 3a, 3b, 3c, 3g, 3h) all say "...cannot have a gain in Part I and a loss in Part III". Every line item matches info in my K-1:

Line 3a (7203) matches Line 1 (K-1), which is a positive number
Line 3b (7203) matches Line 2 (K-1), which in this case is 0
Line 3c (7203) matches Line 3 (K-1), which in this case is 0
Line 3g (7203) matches the additions of Lines 7,8a,8b, 8c (K-1), which in this case is 0
Line 3h (7203) matches Line 9 (K-1), which in this case is 0

Is there another way to NOT use Part III and have the math work? Should I just include the amount from Line 12, Code A from my K-1 in Line 13 (Other items that decrease stock basis)?

AliciaP1

Level 13

Box 12 code A is supplemental information. The reduction is already considered in your Box 1 income. The only time you provide the breakout in Part III is if you have a loss to report because some of the items are treated differently for carryovers if needed.

For your situation, leave Part III blank.

@bles47

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

bles47

Level 2

Thanks!! That makes sense given the instruction for the form, and yet when I look at my K-1 and the Shareholder Basis Worksheet our company accountant provided, the OBI does NOT include deductions against the stock basis (charitable contributions + nondeductible expenses) OR an 'other decrease' to the stock basis which was a transfer of shares to some of our other owners. My point here is that the only way to have Lines 1, 3a, and 15 in form 7203 match my K-1 is to have the 3 types of reductions in stock basis taken into account. Since Line 13 is the only one in the Turbo Tax version of the form that allows manual entry (Line 11 is calculated based on Part III) it seems the only option to make the math work. What am I missing?

Togwotee

Level 2

@AliciaP1

Thank you for all of your posts in explaining Form 7203. I was hoping to ask about my situation. I will use hypothetical numbers for a return that I have already submitted.

I have a K-1 with let's say 2M in nonpassive losses. My allowable loss from stock basis line 47c(form 7203) is 750k with a carryover of 1.25M to future years. I don't think the basis limit is showing up anywhere on schedule E, schedule 1, or 1040 as TurboTax seems to be reporting the entire 2M in losses. Do I need to adjust it manually in TurboTax, as form 7203 doesn't seem to effect the numbers elsewhere in the return? If, so, how?

With my current filed return, if I had wages of 1M, it shows an AGI is 0 instead of 250k.

My losses do pass the at-risk and passive activity limit. I also just found out about the excess business loss limit with form 461, which does not appear to be supported by TurboTax. TurboTax unfortunately didn't ask a relevant question in the interview or alert me to a problem. Since I am MFJ, my threshold limit 524K. As far as I know the only fix for this would be to print out a Form 461 with an amended return and manually make an entry on line 8o on schedule 1, and then mail it in. This would reduce my AGI to 476K and would then also give me an NOL of 226K to manually track (TurboTax doesn't seem to track this without form 461) in addition to the carryover of 1.25M from the basis limitation.

Any insights or help would be greatly appreciated.