Basis and Distributions

I am often asked "What is basis"? Think of basis like a checking account. Investing in your business increase basis just like a bank deposit. A draw from your business decreases basis just like a bank withdrawal. Profits add to basis and losses decrease basis (similar to how interest earnings increase a bank balance and bank fees subtract from it). Just like a bank account, more basis cannot go out than comes in—basis can never go below zero.

So, if you are thinking about taking a distribution from your S-Corp. (or LLC taxed as an S-Corp.), please call me. We should calculate your basis first to make sure that a distribution will not create any unwanted tax problems. Remember…zero basis equals no tax free distribution!