Liquidating distribution taxability

posted by | Leave a comment

Distributions to the shareholder are not included in the shareholder’s gross income to the extent that the distribution does not exceed the shareholder’s basis in the stock.Because the tax consequences of distributions depend on the shareholder’s basis, it is important to keep up with changes in the shareholder’s basis over time.Like C corporations, S corporations do not recognize any gain or loss on a distribution of cash to its shareholders.If the S corporation distributes appreciated property to a shareholder, the corporation must recognize gain as if the property were sold to the shareholder at fair market value.This means that if the difference between the fair market value of the stock and its adjusted base – the price of the stock minus broker or commission fees – is zero, no tax is due on the amount.Payments received in excess of the total investment are subject to capital gains tax.Corporations can fold either by dissolution or complete liquidation.

Credit unions send this sort of distribution to their depositors when they are liquidated as well.Whether the amount qualifies for short or long-term capital gains depends on the trade date – the purchase date -- of the sale.For tax purposes, the holding period begins on the day after the trade date.Long-term capital gains apply if the holding period is at least one year and a day from the trade date.Conversely, if an investor does not recover the total investment, she can report a capital loss.

Leave a Reply

Free chat raw sex