Financial Planner

Answer: D - Losses are deductible to the extent of the owner’s equity investment and debt obligation is a true statement about adjusting the basis of S corporation stock. Shareholders increase the basis of stock by their share of the corporation’s income and gain; they decrease the basis of stock by their share of the corporation’s losses. The cash distribution is considered a non-taxable return of investment that reduces their stock basis. Thus, cash distributions are generally non-taxable for pass-through entities.