Welcome to the prerecorded foundations for Building an S Corporation Step by Step. These videos cover the rules and mechanics that we will apply during the live workshop, beginning with the S election and following the entity’s activity through Form 1120-S, Schedule K-1, shareholder basis, and Form 1040.
The live session assumes that you are familiar with this material. We will spend that time preparing and reviewing the actual forms for our sample company rather than repeating the underlying rules. These videos are provided as preparation and are not eligible for continuing education credit.
We have now followed the federal S corporation lifecycle from evaluating eligibility and making the election through compensation, Form 1120-S, Schedule K-1, shareholder basis, Form 1040, and an eventual stock transfer.The important theme is that these rules operate as a connected system. A decision made when the entity is formed or when the S election is filed can affect payroll, distributions, basis, annual reporting, and the eventual disposition of the business.The final slide summarizes the practical rules that we will carry into the live workshop. During that session, we will apply these concepts to the actual payroll and tax forms rather than considering them only in isolation.
17 Sept 2026
NYSSEA S corporation Foundations Disposition
We finish the federal foundations by considering what happens when a shareholder sells S corporation stock.A stock sale is fundamentally a transaction between the selling shareholder and the buyer. The corporation generally does not sell its assets or recognize gain merely because its shares change hands. Nevertheless, the transfer affects the allocation of the corporation’s current-year tax items, the seller’s stock-basis calculation, and the buyer’s eligibility to remain an S corporation shareholder.We therefore need to distinguish three separate calculations: the seller’s gain or loss on the stock, the allocation of corporate income and deductions through the transfer date, and the buyer’s basis following the acquisition. We also must determine precisely when ownership changed and whether the buyer is an eligible shareholder.
17 Sept 2026
NYSSEA S corporation Foundations Application
We have now worked through Form 1120-S, Schedule K, Schedule K-1, and the shareholder-basis calculations. The final federal reporting step is to place each shareholder’s items on the appropriate parts of Form 1040.A Schedule K-1 does not flow to one location on the individual return. Each item retains its character. Ordinary business income generally goes to Schedule E, interest income follows the interest-reporting rules, charitable contributions go to Schedule A when deductible, and capital or § 1231 items follow their respective forms.Before transferring a loss to the return, we must also apply the shareholder-level limitations in the proper order. The amount shown on Schedule K-1 may therefore differ from the amount currently deductible on Form 1040.
17 Sept 2026
NYSSEA S corporation Foundations Calculation
The Form 1120-S reports the corporation’s activity and allocates that activity among the shareholders, but it does not determine whether a particular shareholder can deduct a loss or receive a distribution without recognizing gain. Those questions depend on basis, which is calculated separately for each shareholder.In this section, we will follow the adjustments to stock basis, examine when a direct shareholder loan creates debt basis, and consider what happens when the corporation makes distributions or repays reduced-basis debt. We will then bring those calculations together on Form 7203. This provides the shareholder-level foundation we need before moving to preparation of Form 1040.
17 Sept 2026
NYSSEA S corporation Foundations Preparation
We now move from formation and payroll into the corporation’s annual income-tax return. Form 1120-S reports the corporation’s income, deductions, credits, assets, liabilities, equity, and shareholder information.An S corporation generally does not pay federal income tax on its ordinary operating income. Instead, the return classifies the corporation’s tax items and passes them through to the shareholders. Certain entity-level taxes can still apply, but they are exceptions to the ordinary passthrough model.The preparation process begins with the corporation’s books. Each financial-statement account must be mapped to the appropriate location on Form 1120-S. Ordinary business items generally affect page 1, while items whose character must be preserved at the shareholder level are separately stated on Schedule K.The return also connects the income statement to Schedule L, Schedule M-1, Schedule M-2, and each shareholder’s Schedule K-1. Those schedules answer different questions and should not be forced to agree merely because their balances appear similar.During the live workshop, we will use our sample company’s financial information to prepare the corporation’s first Form 1120-S and then follow the reported items through the shareholders’ returns.
17 Sept 2026
NYSSEA S Corporation Foundations Compensation
An S corporation shareholder may occupy several roles at the same time. The same person may be an owner, an employee, a lender, and a recipient of distributions. Each payment must be classified according to the capacity in which the shareholder receives it.The S election does not allow an owner who performs substantial services to avoid payroll. Corporate officers who provide services generally are employees, and payments for those services must be treated as wages to the extent they represent reasonable compensation.This section also examines employee status, reasonable compensation, and the special W-2 treatment of health-insurance premiums paid for greater-than-2% shareholder-employees.
17 Sept 2026
NYSSEA S corporation Foundations Formation
Once the entity is eligible and the election is in place, the next step is to determine what happens when the owners transfer cash, property, services, and liabilities to the corporation.Corporate formation is often described as tax-free, but that does not mean it is tax-neutral in every respect. The transaction establishes the shareholders’ initial stock basis, the corporation’s basis in its assets, the treatment of assumed liabilities, and the amounts recorded as capital stock and additional paid-in capital.This section follows those consequences from the shareholder to the corporation. We will distinguish property contributions from compensation for services, examine when liabilities can trigger gain, and connect the tax rules to the opening balance sheet that will later appear on Form 1120-S.These rules will provide the framework for analyzing shareholder contributions to the sample company during the live workshop.
17 Sept 2026
NYSSEA S corporation Foundations Election
We begin with the S election because the filing of Form 2553 is only one part of the decision. Before recommending the election, the practitioner must determine whether the entity is eligible, whether its ownership and governing documents are compatible with Subchapter S, and whether the expected tax savings justify the additional payroll and filing obligations.This section first examines those threshold considerations. We will then work through the federal eligibility requirements, the timing and preparation of Form 2553, and the procedures available when an intended election was not filed on time.
17 Sept 2026
NYSSEA S corporation Foundations Introduction
Welcome to the prerecorded foundations for Building an S Corporation Step by Step. These videos cover the rules and mechanics that we will apply during the live workshop, beginning with the S election and following the entity’s activity through Form 1120-S, Schedule K-1, shareholder basis, and Form 1040.The live session will assume that you are familiar with this material. We will spend that time preparing and reviewing the actual forms for our example company rather than repeating the underlying rules. These videos are provided as preparation and are not eligible for continuing education credit.
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