This article focuses solely on the entry of the Items Affecting Shareholder Basis which are found on Box 16 of the Schedule K-1 (Form 1120S) Shareholder’s Share of Income, Deductions, Credits, etc. For additional information regarding the requirements for Schedule K-1 (Form 1120S), see: Shareholder’s Instructions for Schedule K-1 (Form 1120S).
To enter the Items Affecting Shareholder’s Basis from a K-1 (Form 1120S) in TaxSlayer Pro from the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Rents, Royalties, Entities (Sch E, K-1, 4835, 8582)
- K-1 Input and select ‘New’ and double-click on Form 1120S K-1 S Corporation which will take you to the K-1 Heading Information Entry Menu. If the initial K-1 entry was previously keyed in, double click on the entry in the K-1 pick list.
After entering all of the information required on the K-1 Heading Information screen, select ‘OK’ which will bring the user to the K-1 1120S Edit Screen. This screen has two distinct sections entitled ‘Heading Information’ and ‘Income, Deductions, Credits, and Other Items.’
Items Affecting Shareholder Basis
Line 16A – Tax-Exempt Interest Income – This amount represents the taxpayer’s share of tax-exempt interest. This amount will automatically pull to Form 1040, line 2a.
Line 16B – Other Tax-Exempt Income – This amount represents the taxpayer’s other tax-exempt income. This amount is not reported on the Form 1040. Instead the taxpayer should increase their adjusted basis in their stock in the corporation by this amount. The corporation should provide the taxpayer with a statement describing the nature of the tax exempt income and the reason for treating it as tax exempt.
Line 16C – Non Deductible Expenses – This amount represents the taxpayer’s non-deductible expenses incurred by the corporation. This amount is not reported on the Form 1040. Instead, the taxpayer should decrease their adjusted basis in their stock in the corporation by this amount.
Line 16D – Property Distributions – This amount represents the property that was distributed to the taxpayer by the corporation. These distributions will reduce the basis in the taxpayer’s stock in the corporation. If these distributions exceed the basis of the taxpayer’s stock, the excess is treated as capital gain from the sale or exchange of property and is reported on Form 8949 and Schedule D (Form 1040).
Line 16E – Repayment of Loan by Shareholders – This amount represents the repayment of a loan by the shareholder. If these payments are made on a loan with a reduced basis, the repayments must be allocated in part to a return of the basis in the loan and in part to the receipt of income.
NOTE: This is a guide on entering the Items Affecting Shareholder Basis from Schedule K-1 (Form 1120S) into the tax program. This is not intended as tax advice.
Additional Resources:
Shareholder’s Instructions for Schedule K-1 (Form 1120S)
Schedule K-1 (Form 1120S) – Overview
Schedule K-1 (Form 1120S) – Heading Information
Schedule K-1 (Form 1120S) – Income (Loss) Items
Schedule K-1 (Form 1120S) – Deductions
Schedule K-1 (Form 1120S) – Credits & Foreign Transactions Items
Schedule K-1 (Form 1120S) – Alternative Minimum Tax (AMT) Items