Can I take a loss on capital stock shares when dissolving S-Corp?

[George4]

At the end of 2016, I dissolved an S-Corp that I originally opened with $1,000 for 1,000 shares of Capital Stock.  Can I now take a deduction for a loss by showing a sale of those 1,000 shares for $0 and using the following forms to accomplish the sale/loss?  If there's a better way, please let me know.

On my personal taxes, use Schedule D (Capital Gains and Losses), Part II, to enter Proceeds of $0 and the basis of $1,000, which results in a net long-term capital gain or (loss) of -$1,000.

And on Form 8949, Sales and Other Dispositions of Capital Assets, Part II, check (F) for transactions not reported on Form 1099-B, enter $0.00 for Proceeds, $1,000 as Cost or other basis, original date – 1/3/2008, and Date sold - 12/31/2016,  and Gain or (loss) $-1,000.

Doing this creates a K1S Addl Info form in TurboTax.  In Part II Disposition of S Corporation Shares, 1a was checked indicating a fully-taxable transaction (sale), Lines 2 & 3 shows dates shares were sold and acquired, Line 7 Basis of $1,000, Line 8 loss of $-1,000, Line 10 Long-term (loss) $-1,000.

Now, the K1, Section A, Regular Tax, Line 6d and 6e shows $-1,000 in both columns (a) and (c) for (Loss) and Net Income (Loss) Allowed.  The entries are duplicated in Section B Passive Activity Adjustment to Income or Loss – Alternative Minimum Tax Purposes.

Last question...these forms/steps are all in my Personal taxes...are there forms/steps I need to perform in by S-Corp Final Return?

Thanks...I really appreciate the help.

[Rick19744]

As a shareholder in an S corporation, you should be maintaining a schedule of your basis in this investment.  If you have not been maintaining this, then you do not have the necessary information to determine your final gain or loss.

See the attached IRS link to provide some guidance here:

https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-stock-and-debt-basis

Once you determine your basis you will input your ending basis figure where you currently have the $1,000.  Because all items of income and loss pass through to the shareholder, it is doubtful that your original contribution amount is your ending basis.

[George4]

Thanks.  I looked at the IRS link, and found it confusing.  Seems like it's for situations way more complicated than what I have...though I could be wrong.  

Does this help clarify my situation...

I started the S-Corp with $1,000, and was the only (100%) shareholder/employee.  I only took money out of the company via payroll, and on occasional dividend distribution.  Otherwise, ran the company with standard income and deductions.  Dissolved the company with about $2,500 in it's bank account, and no other assets on the books.  So I took the $2,500 as a distribution.  The only item left in Quickbooks is the $1,000 entry for my initial Capital Stock.

From what I read in the IRS link, I've had no other activity that affects this $1,000 initial basis, and the company stock is now worth $0, so I'm thinking I can take a deduction of the $1,000.

If it's more complicated, do I need to work with an accountant to sort this out based on more specific activity in the company?...or is there a simple way to close this out?

Thanks again for your help!

[Rick19744]

You are not understanding how an S corporation works.  Everything in that link impacts your tax situation.  Yes, it can be confusing.

Working with a tax professional could very well be in your best interest in this final year, especially if you find the link information confusing.

Yes it is more complicated than what you envision and lay out in your response.  Since an S corporation in general does not pay tax, all items of income and or loss pass through to the shareholder and this activity impacts your basis.  Every year your K-1 activity needs to be updated on your basis schedule.  Until this is completed, as noted previously, you cannot determine your final gain or loss.

[George4]

Thanks.  That's what I needed to know.  I don't have the time or inclination to become well-versed on this particular tax issue, so I'll connect with a local tax pro to help me get it wrapped up.

I appreciate your time and effort!