Solved: How do i record a buyout of an s-corp shareholder

caitlin · ‎12-07-2019

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?

CMS_VA_CPA · ‎12-07-2019

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.

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CMS_VA_CPA · ‎12-07-2019

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.

sjrcpa · ‎12-07-2019

And you'll need to reduce AAA by the departing shareholder's portion.

Ex-AllStar

itonewbie · ‎12-07-2019

There is ownership change in PTO.

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Still an AllStar

sjrcpa · ‎12-07-2019

Did the corporation buy out the shareholder?

Ex-AllStar

caitlin · ‎12-07-2019

Yes, the company bought out the shareholder.

30 Yrs Experience · ‎10-13-2020

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.

30 Yrs Experience · ‎10-13-2020

The S Corporation was not a C Corporation ever.

sjrcpa · ‎10-13-2020

Other reductions

Ex-AllStar

jeanp · ‎06-23-2022

What if a new shareholder bought the stock of the outgoing shareholder?

PhoebeRoberts · ‎06-23-2022

Then you should make a new post asking your question.

How do i record a buyout of an s-corp shareholder

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