This article refers to screen Shareholder's Adjusted Basis Worksheet, in the 1120-S return. The worksheet is available from screen K1E by using the Basis Wks tab at the top of the screen.

Basis is tracked at both the 1120-S level and the 1040 level, however, the worksheets are not always the same between the 1120-S and 1040 returns. The "inside basis" is calculated at the S corp level, while the "outside basis" is calculated at the shareholder level. Therefore, the basis worksheet in the 1120-S package is just an estimate of how the basis may be calculated at the individual level. All the final calculations and limitations are applied at the individual (1040) level. In addition, the Schedule K-1 that is issued to the shareholder is not limited and may show negative amounts where applicable. See Drake Tax - Basis, At-Risk, and Passive Activity Limits for details about limitations in the 1040 return.

Important  See Drake Tax – Form 7203: Shareholder Basis – EF Message 5486 for basis worksheet requirements for certain S corporation shareholders when they file their individual return on Form 1040.

Use screen Basis Wks to calculate a shareholder's new basis after increases and/or decreases are made to basis during the current year. The basis of S corporation stock is adjusted on an ongoing basis (unlike for a "C" corporation, where stock basis remains constant unless additional capital contributions are made or stock is sold). A shareholder's beginning basis in S corporation stock is the original capital contribution.

• Increases to basis can include additional stock purchases and capital contributions, separately stated income (including tax-exempt income), and depletion in excess of basis of property.

• Decreases to basis can include distributions of cash or property to shareholders, separately stated losses and deductions, nondeductible corporation expenses, and credit adjustments.

The top of the Basis Wks screen displays the name of the person or entity to which the worksheet refers. To move to the Basis Wks screen for another person or entity, open that person’s or entity’s K1E screen and click the Basis Wks tab there.

Annual Updates

When the program is updated to the next tax year, the end-of-year basis and shareholder loan amounts are automatically updated to the beginning of the year. Any loss/deduction carryover is updated to the beginning of the year and its character (ordinary loss, section 179 expense, charitable contributions, etc.) maintained. The program also tracks the amount of debt applied to losses and the total amount of loss carryforwards.

If a K1E screen is marked as final, none of the related screens for that shareholder are updated for the next year.

Printing the Worksheet

To activate the printing of the basis worksheets within a return, on the PRNT screen, in the section K-1 Items to Print, select Print shareholder’s adjusted basis worksheet.

The basis worksheets can also be produced globally by selecting Print shareholder's/partner's adjusted basis worksheet in Setup > Options > Form & Schedule Options tab.