Business
Basis
What you have invested in a business for tax purposes, adjusted each year for profit, loss and distributions.
Basis starts at what you contributed. It rises with your share of profit and with further contributions, and falls with distributions and with your share of loss.
It matters at two moments. A distribution above basis is a taxable gain, and a loss can only be deducted to the extent of basis, with the rest suspended until basis exists again.
Nobody computes it for you. The K-1 shows some of the inputs, but the running figure is the owner’s to track, which is why it is so often reconstructed years later under pressure.
Related
Terms that come up beside this one
Schedule K-1
The statement a partnership or S-corporation issues to each owner reporting their share of its income, deductions and credits.
S-corporation
A tax election under which a business pays its owner a salary and passes the remaining profit through to them without self-employment tax.
Partnership
A business with more than one owner that files its own information return and passes profit through to the partners.