Five years ago my small business (S corp) purchased treasury stock from a shareholder. How can I remove the negative treasury stock item under capital on my balance sheet. I have no plan to reissue the stock.

If you are the only shareholder simply buy the stock back from the company. I would be easiest to do this at the price the company originally bought the stock back for. Otherwise you will have to recognize and gain or loss and this kind of related party transaction would not hold up to scrutiny by anyone. Better yet do you have any way to estimate what the fair market value of the company stock is?

You see you have to be really careful here not to make any transaction that benefits you personally and is unfair to the company. Even though it might not feel that way, the company is its own separate legal entity and must be treated as such, otherwise you risk losing your limited liability.

If you don't want to deal with all of that why not just leave it there? It is not doing any harm sitting there and plus you never know when you might want to raise some additional capital by selling it again to what I assume would be a minority shareholder.