- quote -

No,there is no such thing as basis in a proprietorship, but
rather a basis in each of the assets that constitute the
business, therefore the situation you describe is
impossible.

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Vijay Sharma <SharmaV[at]Sutterhealth.org> wrote:

- quote -

That is correct. Consider: You start an S corp by putting
$1,000 into it. A year later, it's successful, and I pay
you $50,000 for a 50% share. The corp distributes $25,000
to each of us.

I have a $25,000 return of capital, bringing my basis down
to $25,000.

My purchase of half your stock brought your basis down to
$500, and left you with a $24,500 capital gain.

The company's payment provided you a $500 return of capital,
and a $24,500 capital gain, bringing your basis to $0.

But as 50% owners, we get matching K-1s.

- quote -

For a sole proprietor, draws are irrelevant. The money is
his, and it doesn't matter which of his pockets it's in.

Seth

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Please confirm - I understand for a S Corp or LLC elected a
partnership, the "excess of distribution over basis" is a
Capital Gain which goes to just Schedule D of Form 1040 of
the shareholder/member and is not reported anywhere on
Schedules K and K-1s of Forms 1065 or 1120S because the
capital gain is a personal (shareholder) one and not a
corporate one. Is this not correct? I do realize that the
"total distribution" does go on line 19(a) "Distributions of
cash and marketable securities" of Schedule K.

If the Capital Gain or "excess of distribution over basis"
does go on Schedule K or K-1s, please tell me the line
numbers where they go. I read instructions but did not find
anything on this.

Is the above also true for a Sole Proprietor whose draws
exceed his equity/basis, meaning the excess is a capital
gain reported on his Schedule D? Obviously, he won't have
Schedule K and K-1s.

Thanks in advance for your help

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >