Partnership vs. S Corp | How Basis Can Make or Break Your Tax Bill
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Partnership vs. S Corp | How Basis Can Make or Break Your Tax Bill
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Taking money out of your business isn’t always tax-free. If you’re not tracking your basis, you could get hit with a surprise capital gains tax, even without selling anything. Let's break down what basis means, how it works differently for Partnerships and S Corps, and why overlooking it could cost you thousands.
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Chapters:
(01:06) What Is Basis and Why It Matters
Your basis determines how much you can take out of your business tax-free and how much loss you can deduct.
(01:44) Client Story: The $7K Surprise Tax Bill
A business owner thought their S Corp distributions were tax-free—until a capital gains bill showed up.
(02:23) Calculating Basis: Partnership vs. S Corp
Mike walks through the formula for both. Spoiler: only partnerships include debt in basis.
(06:20) Real-Life Example: Same Business, Different Outcome
Two identical businesses. One pays capital gains, the other doesn’t. The difference? Entity type.
(07:44) Why Basis Gets Miscalculated
Loans, poor bookkeeping, and switching accountants are common culprits behind basis errors.
(09:25) Planning Tips to Avoid Basis Mistakes
Track your basis annually, keep clean books, adjust distributions, or structure shareholder loans when needed.
Podcast Host:
Mike Jesowshek, CPA – Founder and Host of Small Business Tax Savings Podcast
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🎙 ABOUT THE PODCAST
The Small Business Tax Savings Podcast is your go-to resource for cutting-edge tax strategies to help entrepreneurs legally slash their tax bills. Hosted by Mike Jesowshek, CPA, this show breaks down complex tax topics into clear, no-fluff insights so you can keep more of your hard-earned money.