Calculating basis when converting Single Member LLC to be taxed as an S-Corp

Forum|Forum|1 year ago
March 17, 2025
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I have had a Single Member LLC that I used for consulting purposes for over a decade. The LLC has no assets other than a bank account.

I recently landed a large contract and converted the LLC to be taxed as an S-Corp.

The calculated tax basis for the LLC before the conversion was $10,000. However, I only had $5,000 in the business bank account at the time of the conversion.

Should I use the tax basis of $10,000 or the actual cash in the business of $5,000 to calculate my initial contribution to the S-Corp?

Not A Product Question

Best answer by DavidD66

I don't know where your $10,000 "basis" came from, but it's not really relevant if you have no assets other than the cash. You should use the $5,000 as your initial contribution if that is the asset you contributed.

DavidD66Answer

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ehoffman1Author

The $10,000 basis came from reviewing my 1040 Schedule C's for the last 10 years.

I used my initial contribution and then added/subtracted any profits/losses reported on Schedule C.

Meals/Entertainment expenses were 50% on tax basis, but I don't think they add up to $5,000 (or maybe at $500 a year).

But yes, when I converted I only had $5,000 in the bank account.

PatriciaV

Employee

You contributed your full investment in the SMLLC to the S-Corp. This would be your historical adjusted basis, calculated as your initial investment plus additional investments (cash or property) less any funds taken out of the business plus/minus each year's income or loss. This total could well be $10,000 if you were profitable and didn't take funds out of the business.

However, in the absence of any other assets or debt, the cash in the bank account must, by definition, be equal to your equity in the SMLLC. The equation that defines the balance sheet is Assets = Liabilities + Equity.

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