Per Diem Rates from the U.S. General Services Administration

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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").

Per Diem Rates

S corporation Shareholder's Tax Basis

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Two components make up an S corporation shareholder's tax basis:

• Stock basis
• Loan basis (if any)

S corporation Shareholder's Stock Basis

The total amount of money and property you contribute to an S corporation in exchange for its stock equals your initial stock basis. At the end of each year you must increase or decrease your stock basis to account for your share of certain items. Stock basis is important because it's used to determine:

• The amount of a loss you may deduct on your individual income tax return.
• The amount of a distribution you may take before incurring a taxable gain.
• Gain or loss on the disposal of your stock.

Adjusting Your Stock Basis:

You must adjust your stock basis at the end of each tax year. This is done by increasing and decreasing it by certain items. After making the adjustments, the final result is your adjusted stock basis.

Increase Your Stock Basis By:

• Non-separately stated income. This is S corporation net income (gross income minus expenses). This computation excludes separately stated items.
• Items of income separately stated. There are items of income that are computed separately from the corporation's ordinary net income. For example, net short-term capital gain, net long-term capital gain, tax exempt income, and a deduction for excess depletion. Separately stated items are listed on separate lines on Schedule K-1 (below the line that includes the corporation's ordinary business income or loss).

Decrease Your Stock Basis By:

• Non-separately stated loss. This is an S corporation net loss (gross income minus expenses). This computation excludes separately stated items.
• Separately stated loss and deduction items, such as, charitable contributions, Section 179 deduction, capital losses.
• Nontaxable distribution.
• Nondeductible expenses:
  • For example, the nondeductible portion of meals and entertainment.
  • Nondeductible fines and penalties.
  • Your share of depletion for oil and gas properties held by the S corporation not in excess of the property's basis.
• Excess distributions:
  • Distributions that exceed the adjusted basis of your stock are treated as a gain from the sale or exchange of property. For example, if your stock basis is $10,000 and your distribution is $12,000, $2,000 is a taxable gain. The gain is a capital gain, (short-term or long-term, depending on your holding period of the stock).

Three Reasons Why Annual Stock Basis Adjustments Are Made:

1. Gain or loss determination: To compute your gain or loss if you dispose of your stock you need to know your adjusted stock basis.
2. To ensure that correct distributions are made: To comply with S corporation distribution rules, each shareholder must receive distributions in accordance with his percentage of ownership.
3. To avoid losing S corporation status: S corporations are only allowed to have one class of stock. If disproportionate distributions are made to shareholders, it could imply the existence of a second class of stock. For example, if a shareholder gets 50% of the profits but owns only 25% of the stock, this is a disproportionate distribution. If the IRS concludes that disproportionate distributions were made it could revoke S corporation status. If the S corporation was originally a C corporation, the IRS could reclassify the entity back to its original C corporation status and the entity would be subject to C corporation tax treatment.

S corporation Shareholder's Loan Basis

Direct loans you make to an S corporation from your own resources increase your loan basis. Loans others make that you merely guarantee don't count unless you repay the loan. If you borrow funds to finance an activity or to acquire an ownership interest, you may or may not be considered at risk.

Borrowed Funds Used in the Business:

You are considered at risk for funds you borrow that are used in the business if...

• you are personally liable for repayment (recourse loans), or
• the loan is secured by your property, which is not used in the activity.
  • Exception:
    • Most real estate nonrecourse financing can qualify as at-risk if the financing is secured by real property used in the activity. (Check with your tax adviser for the rules.)

You are not considered at risk for the following funds borrowed by you and used in the business:

• Nonrecourse loans that are not secured by your own property which is not used in the business.
  • See the exception above for nonrecourse financing of real estate used in the activity.
• Borrowed amounts that are protected against loss by a guarantee, stop-loss agreement, or other similar arrangement (excluding casualty insurance and insurance against tort liability).
• Amounts borrowed from a person who has an interest in the business, other than a creditor, or who is related to a person (other than you) having such an interest.

Recourse loans:

The lender may pursue a judgment for a default on a note not only against the property underlying the note, but also against the party or parties signing the note.

Nonrecourse loans:

The borrower is not personally liable on the loan. The lender must look to other security for repayment. In nonrecourse financing, only the property used as collateral for the underlying loan may be reached to satisfy a default judgment.

Adjusting Your Loan Basis:

You must adjust your loan basis at the end of each tax year. After making the adjustments, the final result is your adjusted loan basis.

Items that increase or decrease your loan basis:

• Increase your loan basis by:
  • Additional loans to the corporation
  • Deferred (unpaid) interest added to the loan
• Decrease your loan basis by:
  • Repayments of principal
  • Debt forgiven by you
  • Principal amount of a loan converted to stock
  • Your share of net loss in excess of the adjusted basis in your stock

Example:

Loss deducted up to tax basis.

• You invest $5,000 in cash in your S corporation.
• You make a direct loan of $10,000 to the business.
• You materially participate in the business.
• At year-end, the business has a net loss of $20,000.

You may deduct $15,000, the amount of your tax basis (cash, $5,000 plus your direct loan of $10,000). The excess loss of $5,000 cannot be deducted in the current year. The non-deductible portion of the loss is called a suspended loss and is carried over to the following year, or in any year you restore your tax basis to cover the loss.

Had the $10,000 loan been a nonrecourse loan (this means you have no personal liability if the loan doesn't get repaid) your deduction would have been limited to $5,000, the amount of your cash investment, and your suspended loss would have been $15,000.