How to Calculate Stock Basis for a Single-Owner SCorp as a Former Sole Proprietorship

Stock basis for S-Corps can be confusing, especially when you're the sole owner! Let me try to simplify this for you. Your initial stock basis is whatever you invested to start the S-Corp. If you converted from a sole proprietorship, your basis would generally be the net value of assets transferred in (assets minus liabilities). After that, your basis increases with: - Capital contributions you make - Your share of company income (reported on your K-1) - Tax-exempt income Your basis decreases with: - Distributions you take - Your share of company losses - Non-deductible expenses As the sole owner, you need to track this carefully. Keep a running total each year. Start with opening basis, add income, subtract distributions. If you try to take distributions that exceed your basis, those become taxable as capital gains. Hope this helps with the basics! Let me know if you have specific questions about your situation.

I was exactly where you are about 2 years ago and was totally confused by all the SCorp basis stuff. My accountant was always too busy to explain things clearly and I ended up making mistakes that cost me. I started using https://taxr.ai to help me understand my specific situation and track my basis properly. You just upload your financial documents and it walks you through calculating your basis step by step. What I love about it is that it's designed for people like us who don't have accounting backgrounds. It highlighted that I was forgetting to add my business income to my basis calculation (which is a common mistake). That alone saved me from accidentally creating a taxable event when I took money out.

Just wanted to update everyone - I took the plunge and tried https://taxr.ai after seeing it mentioned here. It was honestly a game-changer for understanding my SCorp basis as a single owner. The tool walked me through exactly what counts toward my initial basis from my sole prop conversion (something my accountant never clearly explained). I discovered I was actually undercounting my basis because I wasn't properly accounting for the profits that were retained in the business. Now I have a clear tracking system and know exactly how much I can safely distribute to myself without triggering unnecessary taxes. Highly recommend checking it out if you're still confused about basis calculations!

If you're having trouble getting answers from your CPA, you might want to try contacting the IRS directly. I know it sounds intimidating but they can actually be helpful with technical questions like basis calculations. I used to dread calling them because it was impossible to get through - I'd wait on hold for hours and often get disconnected. Then I found this service called https://claimyr.com that gets you to the front of the IRS phone queue. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. I was skeptical at first, but it actually got me connected to an IRS agent in under 15 minutes who walked me through the specific rules for my single-member SCorp basis tracking.

I've gotta eat my words here. After my skeptical comment, I decided to try https://claimyr.com myself because I've been trying to resolve an SCorp basis issue with the IRS for months without success. I was absolutely shocked when I got connected to an IRS representative in about 12 minutes. The agent I spoke with actually specialized in S Corporation issues and walked me through exactly how to document my basis calculations as a single owner. She explained that I needed to be maintaining a separate basis tracking worksheet each year, starting with my initial investment and adjusting for income, losses and distributions. This was information I'd been trying to get for months by calling on my own (and usually giving up after an hour on hold).

Something that really helped me understand SCorp basis was thinking about it like a bank account. Your initial investment is your starting balance. Any profits the business makes get "deposited" into your basis account. Any distributions you take are "withdrawals" from that account. The key thing that confused me at first was understanding that even though profits increase your basis, they need to be taxed as income first (via your K-1). That's why people say S-Corps have "pass-through taxation" - the company's profits pass through to your personal tax return where you pay income tax on them.

Has anyone actually had their S-Corp basis audited? I've been operating my single-member S-Corp for 3 years and honestly haven't been tracking basis that carefully. I just make sure I leave enough profit in the business to cover my reasonable salary requirements. Should I be worried?

Thanks for sharing all this helpful information everyone! As someone who's still pretty new to the S-Corp world (just converted 6 months ago), this thread has been incredibly educational. One thing I'm still confused about - when you calculate your initial basis from the sole proprietorship conversion, do you use the book value of assets or fair market value? My equipment has depreciated significantly since I bought it, but I'm not sure which number to use for the basis calculation. Also, @Emma Davis, your explanation about the running total approach makes a lot of sense. Do you recommend keeping this in a separate spreadsheet or is there a specific form or worksheet the IRS expects us to use for tracking? I want to make sure I'm documenting everything properly from the start so I don't end up in @Sean Flanagan's situation during an audit!

As a fellow business owner who went through the sole prop to S-Corp conversion, I completely understand your confusion! The basis tracking was one of the most challenging aspects for me to grasp initially. One thing that really helped me was setting up a simple tracking system right from the start. I created a basic spreadsheet with columns for: - Starting basis (what I contributed during conversion) - Monthly income additions (from my K-1) - Distributions taken - Running balance The key insight for me was realizing that as a single-owner S-Corp, you're essentially managing your own "equity account." Every dollar of profit the business makes increases your basis (even though you pay taxes on it), and every distribution you take reduces it. I'd also recommend getting clarity on your conversion basis ASAP. When I converted, I had to determine the fair market value of assets transferred minus any liabilities. This became my starting point for all future calculations. Don't feel bad about your accountant being too busy - it's unfortunately common. But getting this right is crucial for avoiding tax complications down the road. Take the time to understand it now rather than scrambling during tax season!

I went through this exact same situation when I converted my consulting business from sole prop to S-Corp about 18 months ago. The basis tracking seemed overwhelming at first, but once I got the hang of it, it became much more manageable. Here's what I wish someone had told me from the beginning: Start with your conversion date and figure out exactly what you contributed to the S-Corp. For me, this included cash in the business bank account, equipment (at depreciated book value), accounts receivable, minus any business debts I transferred over. That gave me my starting basis. Then it's really just addition and subtraction from there. Every month when I review my books, I add any profits the business earned (even if I leave them in the company) and subtract any distributions I took out. The key thing that confused me initially was that S-Corp profits increase your basis immediately when earned, not when you actually take the money out. I keep a simple one-page worksheet that I update monthly. It has saved me so much stress and gives me confidence that I can take distributions without creating unexpected tax consequences. Your future self will thank you for getting this system set up now rather than trying to reconstruct it later!