Tax on sale of s corp stock question

[Ronstar]

Last year was the first year that I prepared our tax return. Simple using turbotax. This year I have a wrinkle. I owned 12.37% of an s corp until Aug 26, when I sold 6% for $78k. So i still own roughly 6.37%. This year's K-1 shows my ownership at 10.20% - which is the prorated pct based on approx 8 months at 12.37% and 4 months at roughly 6.37%. K-1 shows beginning stock basis at 26.5k, ending basis at 78.7k. I also have a 25k note to the corp resulting in a 25k debt basis.

I'm trying to understand how to figure the tax on Aug 26th sale before I dive into turbotax. I've seen some info online indicating that I should only use the beginning yearly basis when calculating the gain. It seems like a proration between the beginning and ending basis would be appropriate.

I haven't started our return in Turbotax yet, but I assume Turbotax can handle this with the correct inputs. But I want to make sure I understand what I'm entering. Anyone have experience in computing gains from mid year sales of s corp stock?

 

[Texas Proud]

This is an interesting question... and I do not know the answer, but will throw out a thought on what I would do... (who knows if it is correct)....

I would treat it as two separate K-1s... IOW, you had two certificates at 6% each (making it simple)... you sold one of them... I would separate out the income etc. to the respective certificates to get your basis...

 

[ducky911]

When i sold my scorp i owed no taxes on the sale. S corp is made up of original money and after tax money from profits from each year. Each year the corp passes it's tax obligation off to shareholders to pay taxes on thier personal tax es prorated by the percent of ownership.

Example might say it better

You put in 10k original to start a new scorp...10% ownership

Each year the corp claims 50k profit...you get a k1 and for 5k and you pay tax on that . The scorp pays no tax and the 50k stays in.

All money in the scorp is tax free when sold

What i am not sure about is how to calc the percentage of ownership that you had as you sold part during the year...but it looks like the corps accountant has calced that for you as 10%. If that is corect you owe 10 percent of the profits for the year.

Sorry if you knew all of this and i am not an expert but had an s corp for 20 years and just closed it.

So

 

[pfleming]

Ducky911 is pretty close and I'm assuming the S corp sale referenced was for no "gain". The question is do you have a gain or did you sell your percentage at no gain (other than previously taxed basis adjustments)? A sale of the whole amount is probably easier to calculate tax wise... so your basis on the day of the sale should include profits and losses up to that date. You may need or want more information from the accountant regarding that.