What it is
An S corporation shareholder can deduct losses and receive tax-free distributions only to the extent of basis. Basis in stock and in loans to the company must be tracked from year to year, and the order in which items apply decides the answer.
The worksheet follows the order in IRC 1367: increases first, then distributions, nondeductible expenses and finally losses. Losses above stock basis reduce debt basis, and what remains is suspended and carried forward. It restores debt basis from net increases, shows distributions above stock basis as gain and carries every ending balance into the next year. One tab per shareholder.
When to use it
- Preparing Forms 1120-S and K-1 reviews.
- Before a shareholder takes a distribution or deducts a loss.
- Cleaning up basis history for a new client.
What’s inside
- Three shareholder tabs with five years each
- K-1 inputs and loan inputs
- Computation in the statutory order
- Checks for negative basis and loss reasonableness
Standard cited
This template follows IRC 1366 and 1367. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use.
Questions
What order do items follow?
Basis is increased for income and contributions, then decreased for distributions, then for nondeductible expenses and finally for losses and deductions.
What about loans?
Losses above stock basis can be deducted to the extent of debt basis. Net increases restore reduced debt basis first. Repayment gain is not computed here.
Does basis settle the loss deduction?
No. At-risk and passive activity limits apply after basis.
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Last updated 11/05/2026. All free templates.