Small Business Tax Savings Podcast Partnership vs. S Corp | How Basis Can Make or Break Your Tax Bill
Jul 23, 2025
Taking money out of your business isn't always tax-free, and understanding your basis is key to avoiding surprises. A business owner's shocking $7K capital gains tax illustrates the importance of tracking basis accurately. The podcast discusses how partnerships and S Corps calculate basis differently, with partnerships including debt. Common miscalculations stem from poor bookkeeping and switching accountants, leading to costly errors. Listeners gain practical tips on annual tracking and better management of distributions.
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Calculating Partnership Basis
- Partnership basis equals initial investment plus income, contributions, minus losses and distributions, plus liabilities.
- Basis is a rolling calculation carried forward year after year.
S Corp Basis Differs From Partnership
- S corporation basis equals initial investment plus income and contributions minus losses and distributions.
- Liabilities do not increase basis in an S corporation, unlike partnerships.
Distributions vs. Profits Taxation
- Distributions are generally tax-free if within basis, but profits are taxable regardless.
- Taking distributions in excess of basis incurs capital gains tax.