Negative basis in business refers to the value of the equity investment in the company. It literally means you have no actual equity investment and worse you owe somebody money because other parties have fronted the necessary capital to make the business viable.
Tax basis is one of the forms of basis used in business. The primary purpose of tax basis is to determine the gain or loss generated on the disposal of an asset for income tax purposes.
Accounting’s primary purpose is to measure economic activity. There are several different methods to determine the economic value generated in your business each year. In accounting this is referred to as sets of books. There are four basic sets of accounting books. Each has a different purpose and end goal.
Code Section 465 of the Internal Revenue Code defines ‘At-Risk’ as the financial value the taxpayer has in jeopardy related to the business activity the taxpayer is invested in as some form of an owner. Effectively, the taxpayer may only take losses on his tax return contingent on the loss being directly tied to invested dollars with some form of tax basis.
A ‘Capital Account’ is a term used in partnership and in limited liability company business formats. It refers to the individual balances in the equity section of the balance sheet. The basic formula for value is beginning balance plus contributed capital plus earnings from the current accounting period less any withdrawals