A shareholder's basis is decreased by which of the following?

A shareholder's basis in a corporation represents the amount of their investment in the company, and it can be adjusted up or down based on various transactions. The correct choice, dividends, is the only event among the options listed that directly reduces a shareholder's basis.

When a corporation pays dividends, this distribution is considered a return of capital to the shareholders. As a result, it decreases the basis of the shareholder in the stock because the distribution is not considered income for tax purposes until the basis is fully recovered. This is a fundamental principle in corporate taxation: dividends represent a payment of profits to shareholders, but they also reflect a portion of the investment being returned.

In contrast, nonseparately computed income, guaranteed payments, and capital contributions serve different tax purposes. Nonseparately computed income generally increases basis, indicating that a shareholder's investment in the company is increasing. Guaranteed payments are typically associated with partnerships and are treated differently, as they represent compensation to partners rather than a direct shareholder transaction. Finally, capital contributions are additional investments made by shareholders and serve to increase their basis, reflecting the additional funds being invested into the company.

Understanding these dynamics related to shareholder basis is essential for accurately calculating tax implications and maintaining proper accounting of investments in corporations.