Discussion Question Week 7: S Corporation

Discussion Question
Student:
Professor:
Course title:
Date:
Discussion Question
Response to question 1
The suggested plan for increasing the deductible pass through loss and deductions is to increase the basis; should obtain additional basis. The amount of a shareholder’s debt and stock basis in the S corporation is of major importance. A shareholder’s debt and/or stock basis of an S corporation decreases or increases each year basing on the operations of the S corporation. In a year, losses usually decrease debt and stock basis to zero and the losses could be deducted in that year if the client – the shareholder – chooses to increase basis. It is worth mentioning that basis increases that occur prior to the end of the S corporation’s tax year could be utilized in deducting current as well as prior losses. Basis should be increased before the ending of the company’s tax year.
Response to question 2
In an S corporation having no accumulated profits and earnings, distributions are taxed in the following way: first, the distribution is tax free to the degree of the shareholder’s adjusted basis in all of the shareholder’s stock. Moreover, the distribution also decreases stock. Secondly, to the extent the distribution surpasses the...