I have an S-corp client with three shareholders. One of them was bought out this year. The buyout is 50% cash and 50% note payable to the exiting shareholder. How do I report this transaction on 1120S?
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You have Treasury Stock for the purchase price (assuming your state allows Treasury stock) and a Note Payable for the amount owed.
You will also need to show the ownership change (ProSeries Professional has worksheets for this but I do not know about PTO). The part year owner will get a K-1 for his/her ownership time based on pro-rated profit unless an election was made and specifically agreed to by stockholder to have K-1 based on actual profit for the days owned.
You have Treasury Stock for the purchase price (assuming your state allows Treasury stock) and a Note Payable for the amount owed.
You will also need to show the ownership change (ProSeries Professional has worksheets for this but I do not know about PTO). The part year owner will get a K-1 for his/her ownership time based on pro-rated profit unless an election was made and specifically agreed to by stockholder to have K-1 based on actual profit for the days owned.
Did the corporation buy out the shareholder?
Can someone expand - how does one reduce the AAA for the departing shareholder on the redemption. AAA will be reduced by 1/3rd as 1/3rd owner redeeming his shares. Any accounting required or only a reduction to the AAA account (note: AAA is not maintained on the S Corp. Books? What Line is used on M2 to reflect the reduction.
The S Corporation was not a C Corporation ever.
Other reductions
What if a new shareholder bought the stock of the outgoing shareholder?
Then you should make a new post asking your question.
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