Form 7203 is used by shareholders of an S corporation to determine if there are any limitations on their share of the S corporation's deductions, credits, and other items.
If a client has received Schedule K-1 from an S corporation, ask them if they also received a copy of Form 7203. While it's not the responsibility of the preparer who issued the Schedule K-1 to prepare Form 7203 for the taxpayer, they may have done so.
When preparing the tax return for a client that received Schedule K-1 from an S corporation, you should include Form 7203 with their individual tax return if any of the following are true:
- They are claiming a deduction for a loss on Schedule K-1 (Form 1120-S).
- They disposed of stock in the S corporation.
- They received a non-dividend distribution from the S Corporation.
- They received a loan repayment from the S Corporation.
When completed, Form 7203 will show you whether the taxpayer has sufficient basis to claim any of the loss, deduction, or credit items on the Schedule K-1.
The IRS recommends that an S Corporation shareholder complete Form 7203 every year and maintain the form in their tax records even in years where none of the reasons listed above apply. Maintaining Form 7203 annually allows taxpayer to have the information available when required in a future tax year.
Completing Form 7203 in TaxSlayer Pro
In TaxSlayer Pro, Form 7203 is accessed in the course of entering Schedule K-1 from an S corporation, so the first step is to enter the S corporation Schedule K-1.
To complete or edit Form 7203 in TaxSlayer Pro, from Main Menu of the tax return (1040) select:
- Income
- Rents, Royalties, Entities (Sch E, K-1, 4835, 8582)
- K-1 Input - Select and open the 1120-S Schedule K-1.
- L. Shareholder Stock and Debt Basis (7203) - Select to open the form. Complete each section as needed.
Additional Information:
IRS Form 7203 - Form lines and explanations