Video: Contributions to an S Corporation

In this lesson, join Nick Palazzolo, CPA, as he delves into the intricacies of making contributions to an S Corporation. Nick breaks down the non-taxable nature of cash or property contributions in exchange for stock, as long as specific ownership thresholds are met. He also unpacks the tax implications for shareholders contributing services, the treatment of property contributions, and how these factors interact with the basis adjustments of S Corporation stock. Through a thoughtful example, Nick brings these concepts to life, walking through the tax treatment of both cash and property contributions, services as taxable income, and the importance of the 80% stock ownership rule to avoid unrecognized gains. This lesson provides a comprehensive outlook on the different facets of S Corporation contributions and the associated tax considerations.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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All right. Contributions to an S-corporation. This is something we see in all of our entity types. Contributions to corporations, meaning normal C-corps. Contributions to partnerships. Super important concept and diving through what we need to see for an S-corp. Now, contributions in exchange for stock. So this is when we're contributing, let's say, cash or property in exchange for stock in the S-corp. The transaction is generally non-taxable. Super important. You're going to want to make sure you're ready for a SIEM that deals with the comparisons between contributing to a C-corp, S-corp partnership. What's the basis for any of the shareholders' partners? What's the basis in the contributed property to the entity? What are the gains and losses that happen? So all of that is incredibly important. Something that, yeah, will have a lot of questions on and prepare you well for it. But for sure, you're going to want to be able to, at the same time, look at all the entity types and understand the differences between them. However, here, the shareholder must meet specific requirements, including having at least 80% ownership of the corporation stock after the transfer. If the shareholder does not meet this requirement, any gain on the transaction must be recognized and reported for tax purposes. This is something we'll see similarly to partnerships as well, where the goal of this rule is to make it so that jointly with other people, if you have 80% when you're forming it, that's one thing. But later on, if you're buying into the S-corp, that's another thing. Trying to keep this a small, closely held organization that is getting the majority of its activity when you form it with those who you intended to form it with. We're not trying to consistently buy and

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S corporations

Module: 3 Concepts, 35 Videos

S Corporations: Eligibility and Election Overview

3:48

Introduction to S Corporations: Eligibility and Election

2:21

Shareholders of an S Corporation

4:57

S Corporation Eligibility Requirements