I recently sold most of the assets of my business and upon doing this the business was no longer operational, so I am closing the business. I need tax advice on how to treat the common stock, paid-in capital and treasury stock on the final S Corp tax return (1120S). The corporation was originally a C Corp but changed to S Corp status back in 1985. The business has $34,000.00 left in assets and $100,000.00 left in debt. The Treasury stock is $51,000.00, additional Paid-In Capital is $24,574.00 and the Common stock is $140,000.00. Can I deduct any of these items on 1120S or personal return? If so, where do I enter them? Please advise.

The business has $34,000.00 left in assets and $100,000.00 left in debt. The Treasury stock is $51,000.00, additional Paid-In Capital is $24,574.00 and the Common stock is $140,000.00. Can I deduct any of these items on 1120S or personal return? If so, where do I enter them==========>>>basically, liquidation includes distributing and selling property and other assets the S corporation owns. The proceeds from the sale or distribution of property must go toward paying all outstanding debts and obligations the S corporation holds.
I guess in your case, you need to pay your creditors based on priority. This includes loans from not to you, sole shareholder. You will pay them which will reduce cash and reduce account payables. And then, the property of the business needs to be distributed or sold. If sold, they will be reported as sold by the business. If not sold, they will be considered distributions to you and will have to be listed as such. You have the right to receive property or proceeds from property liquidation only upon the discharge of all outstanding obligations to creditors. Any amount still outstanding as a loan to shareholder will convert into a distribution. The fmv of property distributed to you including cash and unpaid shareholder loans will be treated as distributions with the exception of receivables. If the value exceeds your basis, it will be taxed as capital gain. If less, capital loss. When the S Corp purchases a shareholder's stock, this transaction does not affect the other shareholders' basis in the S Corp; if the company has treasury stock that was recently turned in by a shareholder and wishes to issue some of it to a key employee,the fair market value of the stock awarded to the key employee is taxable compensation to the employee. This can be a complicated issue because you would need to value the stock. Unlike common stock, treasury stock does not offer voting rights, earn dividends or have any claim to assets in the event of company liquidation.


There are special rules for recent 179 deductions that require recapture and for depreciable or amortized expenses which may allowaccelaration to reduce profit.
Note; what gets transfered to what lines depends on what happened to each item. The cash likely went to the shareholders. Adjust Cash to $0 and record distribution to shareholder;If the fixed assets were sold, scrapped, or abandoned, Record a gain or loss on form 4797. I guess you need to recapture sec 1245 deprecaiiton. If you, as the shareholder, took them, record as a distribution for the net book value .The loans to shareholder ; if they are not going to be repaid, you have to record income from the cancellation of debt. Adjust the loan amount to $0 and record income. The income will flow to sche K-1 and to personal tax return on 1040.

Don't forget your state. Most states have an annual report filing requirement. Some states charge a penalty for not reporting ; some just automatically dissolve. When your 1120-S is completed, your balance sheet will have all zeros, and you will have a K-1 showing some final income or loss and distributions on form K-1. The K-1 flows to your personal income tax return. Report the flow through items from the K-1 as usual. Your stock is a capital asset. You will report a capital gain or loss on sch D. If you dissolved , the stock selling price was 0. If you sold - that is where you compute the FMV. Your cost or "basis" in the stock is your capital stock, paid in capital and retained earnings (balance in your AAA). The tax basis AAA may be a little different from retained earnings. The AAA basis is usually calculated each year with the 1120-S. The distributions of cash/assets is reported on schedule M-2 and sch K-1. The cancellation of debt is ordinary income to the the corp and a business bad debt deduction to the individual. You could make the argument that the loan was never intended to the be repaid and treat as paid in capital. Both increase your AAA basis - so I see no tax implications if you don't want to report the "offset" bad debt on your personal return. You need to review the AAA calculation. AAA is increased for the stock , paid in capital. The loan/PIC will also increase AAA. Non-dividend distributions taken over the years should have decreased AAA. The difference between Retained Earnings and AAA is basically tax treatment items. Review the schedule M-1 - tax adjustments things like Meals and Entertainment, Officer Life Insurance, and penalties that still reduce your AAA basis even though you didn't get a tax deduction. From the information you have given, it looks like your AAA calculation is incorrect. It should be closer to 0. Go back as far as you can, review the tax returns and recalculate AAA. IF you used AAA basis to deduct LOSSES on your previously filed tax returns ,form 1040 and the AAA was wrong you might consider amending. If you had losses from the S-Corp that you couldn't use because the AAA was incorrect, then you might want to amend. This is rare - most people make sure they have basis to deduct their losses - that is probably why you loaned money to the corporation in the first place.