You are given the following facts about a 40% owner of an S corporation,and you are asked to prepare her ending stock basis. $\begin{array}{ll}
\text { Beginning stock basis } & \$ 36,800 \
\text { Increase in AAA } & 32,000 \
\text { Increase in OAA } & 6,300 \
\text { Payroll tax penalty } & 2,140 \
\text { Tax-exempt interest income } & 4,800 \
\text { Insurance premiums paid(nondeductible) } & 2,700 \
\text { Purchases of additional stock } & 22,000
\end{array}$

Question

Quizplus · Accepted Answer

To calculate the ending stock basis, we need to start with the beginning stock basis and add any increases during the year (income, separately stated items) and subtract any decreases (distributions, losses, separately stated items). 
Beginning stock basis = $50,000 (given)
Increased by:
- Pro rata share of S corporation income = $30,000 (40% of $75,000)
- Pro rata share of charitable contributions = $1,500 (40% of $3,750)
- Pro rata share of section 179 expense deduction = $2,620 (40% of $6,550)
Total increases = $34,120
Decreased by:
- Pro rata share of distributions = $10,000 (40% of $25,000)
- Pro rata share of S corporation losses = $4,000 (40% of $10,000)
Total decreases = $14,000
Ending stock basis = Beginning stock basis + increases - decreases
= $50,000 + $34,120 - $14,000
= $74,120

You Are Given the Following Facts About a 40% Owner