Question

Which, if any, of the following items has no effect on the stock basis of an S corporation shareholder?

1) Long-term capital gain.
2) Short-term capital loss.
3) Operating income.
4) Cost of goods sold.
5) The 20

Answer 1

The correct answer is 4) Cost of goods sold.

Step-by-step explanation:

The question revolves around the factors affecting the stock basis of an S corporation shareholder. Within the context of S corporations, the stock basis can be influenced by various items. However, the correct answer to which item does not affect the stock basis of an S corporation shareholder is cost of goods sold. This is because cost of goods sold is an expense on the corporation's income statement that reduces the corporation's income, and it does not directly affect the shareholders' basis in the stock.

Now let's briefly address each part of the question relative to a shareholder's stock basis:

1. Long-term capital gain - Increase the stock basis.
2. Short-term capital loss - Decrease the stock basis.
3. Operating income - Increase the stock basis.
4. Cost of goods sold - No effect on the stock basis.

In summary, the stock basis is adjusted by the income and losses of the S corporation, but not by its expenses like cost of goods sold. This reflects the shareholder's economic investment in the S corporation.