It would be in your best interest to consult with a tax professional to grasp how S corps work and getting you started down the right path. Having said that, I will provide some discussion:
- When you made the S election, what ever you contributed into that entity is your beginning basis. Property will carry over based on the adjusted basis and cash is just cash. If the S corp assumes liabilities, then this adjusts your basis as well.
- From here on out (once beginning basis is determined) you will adjust your basis annually based on the applicable lines of the K-1 issued to you.
- Anything that occurred before the S election, will have no impact on your basis.
- Your beginning balance sheet will not have any retained earnings. It will simply be debits and credits related to the items discussed in bullet 1 above. The remaining balancing entry will be to shareholder equity.
- Any Section 179 carryover is a personal item and will have no impact on the S corporation.
- You will be able to take losses on your personal return only to the extent you have basis; either capital or debt basis.
- Maintaining an accurate basis schedule is extremely important as it determines allowable losses, tax impact of distributions, etc.
- While the attached link to the IRS is based on 2015, it will generally still hold true; the line numbers on the K-1 may have changed somewhat (I did not check this). https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-stock-and-debt-basis
- Also make sure that you prepare your 1120S first as the K-1 reporting will impact your personal tax return. We see instances where individuals have already prepared their 1040 and then start asking questions about the 1120S.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
