A shareholder's basis in the stock of the S corporation initially depends on the amount of capital contributed by the shareholder.
However, because the S corporation is a pass-through entity, the shareholder's basis changes every year, depending on income, losses, and other separately stated items.
For example, when Ronald Reagan took office in 1991, the U. national debt had just hit 994 billion dollars and the Dow was sitting at 951.
And as you can see from this chart by via David Stockman, roughly that same ratio has held true throughout subsequent presidential administrations…
Unfortunately, most people do not understand this, and the mainstream media is treating “Dow 20,000” as if it is some sort of great historical achievement…
The average began tracking the most powerful corporate stocks in 1896, and has served as a broad measure of the market’s health through 22 presidents, 22 recessions, a Great Depression, at least two crashes and innumerable rallies, corrections, bull and bear markets.
Secondly, a bank may become insolvent if it cannot pay its debts as they fall due, even though its assets may be worth more than its liabilities.
This is known as cash flow insolvency, or a ‘lack of liquidity’.Unlike partnerships, S corporations are not subject to either the accumulated earnings tax or the personal holding company tax.Earnings are accumulated in a retained earnings account, but they are not considered earnings and profits (), since the income is taxed on the individual returns of the shareholders.During the Clinton years the Dow raced out ahead of the national debt, but an “adjustment” during the Bush years brought things back into line.The cold hard truth is that we have been living way above our means for decades.In this balance sheet, the assets are larger than its liabilities, which means that there is a larger buffer of ‘shareholder equity’ (shown on the right).