2021 tax forms will drive more S corporation shareholders to seek tax basis info

If you own an S corporation, filing your 1120S and 1040 is about to get more complicated. Reason being, certain S-Corp shareholders, especially those with 100% ownership may not be able to fulfill the latest requirement from IRS to disclose their tax and debt basis, especially for those business owners who do not maintain a proper accounting system and do not have financial statements available for their S corporations.

The IRS recently drafted Form 7203, to force S Corp owners to disclose their Stock and Debt Basis. The final form is expected to be available for filing with 2021 shareholder returns, however, it is still currently pending from final release by the IRS. 7203 is to be filed by S corporation shareholders if certain conditions exist, including claiming a deduction for their share of an aggregate loss, receives a distribution, disposes of stock, or receives a loan repayment from an S corporation. It is the S Corporation shareholder’s responsibility to maintain tax basis, and it can be complicated to account for all the data especially for business owners who do not track their basis historically. This form is beneficial, as it will ensure basis is consistently maintained throughout the year. If this is your first year having to deal with this disclosure, you may need help. If you have any further questions, please reach out to us. We will also prepare a video for you to elaborate more in detail.