Form 7203

IRS Form 7203 - A Brief Overview

IRS Form 7203 is a document designed to assist shareholders of an S Corporation in keeping track of adjustments to their stock and debt basis. While not required to be filed with an individual’s tax return, it's an essential record-keeping tool that the IRS may request during an audit. This form enables the IRS and shareholders to have a clear, consolidated record of the basis of an S Corporation shareholder's stock and debt.

Role of IRS Form 7203 in S Corporation Shareholder Stock Basis

The concept of S Corporation shareholder stock basis is vital as it dictates the tax implications of various transactions including, but not limited to, distributions, losses, and sales of stock. The IRS uses the stock basis to determine the taxable amount of these transactions.

IRS Form 7203 plays a significant role in this context. It helps track increases or decreases in a shareholder's stock basis due to the corporation's income, loss, deduction, and credit items, as well as the shareholder's contributions and distributions.

The shareholder's stock basis initially starts with the cost of the stock or the basis of the property transferred to the corporation. It then increases for items such as income and additional capital contributions and decreases for items such as losses, deductions, and distributions. This changing stock basis, documented through Form 7203, can significantly impact the tax outcome of any future sale of S Corporation stock to another shareholder.

How To Fill Out S Corporation Shareholder Stock Basis Worksheet

Filling out the S Corporation Shareholder Stock Basis Worksheet can seem a daunting task if you are not familiar with the process. However, once you understand the steps, it becomes straightforward. Here's a step-by-step guide on how to fill it out:

• Initial Stock Basis: Your basis starts with the amount of money or the adjusted basis of property you contribute to the corporation in exchange for stock. Enter this figure in the initial stock basis section.
• Income Items: Add any non-separately stated income or loss, separately stated income, tax-exempt income, and excess depletion. These figures will be found on Schedule K-1 (Form 1120S), boxes 1, 2, 3, 10, and 15. Add these to your basis.
• Loss and Deduction Items: Subtract any non-separately stated loss, separately stated loss, non-deductible expenses, and depletion for oil and gas property. These are also found on Schedule K-1 (Form 1120S), boxes 1, 2, 7, 8, 9, and 10. These figures decrease your basis.
• Distributions: Subtract any distributions received from the S Corporation during the year. This does not include dividend distributions; those are treated differently. The distribution amounts can be found on Schedule K-1 (Form 1120S), box 16D. Distributions decrease your basis but not below zero.
• Loan Repayments: If you've made a loan to your S Corporation, repayment of the loan by the S Corporation will not affect your stock basis. However, if the S Corporation has loaned you money, repayment of that loan increases your stock basis.
• Additional Contributions: If you have made any additional capital contributions during the year, add these to your stock basis.
• End-of-Year Stock Basis: Calculate your end-of-year stock basis. This is your initial basis, plus or minus the adjustments made for income, loss, and deduction items, distributions, and additional contributions.
• Record Keeping: It's essential to keep accurate records of your S Corporation Shareholder Stock Basis Worksheet. You should maintain copies of this worksheet for every tax year that you are a shareholder.