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judyeve33
Level 1

Election to reduce basis - S Corp

My husband and I are the sole shareholders of our S corp.  Last year we had our accountant do both our business and personal returns.  On our personal return, Schedule E, Part II Loss from S Corp, item 28(e) the boxes are checked for "Check if basis computation is required" and then the return also has a document titled "General Elections"... "Pursuant to IRC 1.1367-1(G), taxpayer elects to reduce basis by losses and deductions before nondeductible expenses and oil and gas depletion.  Taxpayer agrees to carry over to the succeeding year the nondeductible, noncapital expenses and oil and gas depletions deductions that exceed stock and debt basis."

 

This year we want to do our own personal taxes (accountant still doing the business return).  We have our K-1's and again we have a loss this year, as we did last year.  I've entered everything into Turbo from the K-1.  However, the Schedule E that Turbo produced, the box is not checked on item 28(e) and there is no election document included with the return.

I don't understand what any of this means, and I don't know how to make TT check the box on item 28(e) of Schedule E and / or create the "General Elections" page.

 

I looked up the referenced regulation (IRC 1/1367-1(G)), and it says once elected, this choice must always be elected.  HELP!  🙂

2 Best answer

Accepted Solutions
Rick19744
Level 12

Election to reduce basis - S Corp

Once the Reg 1.1367-1(g) election is made, it covers the year made and all future years.  So you only make the election in the first year and don't need to worry about making the election again.

 

*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

Anonymous
Not applicable

Election to reduce basis - S Corp

what it means - you can only deduct losses to the extent you have basis.  the prior accountant's worksheet should show your basis as of the end of 2018.  to that you add any money you put in (I'm assuming you didn't put in any non-cash items such as a car, real property, etc. )   either as a capital contribution or loan (but loans create a separate problem)  now you have your basis for deducting losses (assuming threre were no distributions  - box 16d).   the losses that reduce basis are those that are deductible  on your income tax  return which most losses and deductions are  (ignoring passive loss rules).  expenses which aren't deductible would show up in box 16c   - these are ignored for the time being.   as i said your deductible losses are limited to your basis. and TT  1040 doesn't handle this unless you complete form 6198 (at risk).     in most cases at-risk and basis have the same result but there can be a difference.   

 

hate to say this but an LLC might have been just as good as an S-Corp and you would not run into problems like having to file an additional return and running into having to compute basis. 

 

another issue with the S-Corp is the need to take salaries even if there are losses.  there are no salary requiremnts for members in an LLC.   

 

View solution in original post

3 Replies
Rick19744
Level 12

Election to reduce basis - S Corp

Once the Reg 1.1367-1(g) election is made, it covers the year made and all future years.  So you only make the election in the first year and don't need to worry about making the election again.

 

*A reminder that posts in a forum such as this do not constitute tax advice.*
Anonymous
Not applicable

Election to reduce basis - S Corp

 
Anonymous
Not applicable

Election to reduce basis - S Corp

what it means - you can only deduct losses to the extent you have basis.  the prior accountant's worksheet should show your basis as of the end of 2018.  to that you add any money you put in (I'm assuming you didn't put in any non-cash items such as a car, real property, etc. )   either as a capital contribution or loan (but loans create a separate problem)  now you have your basis for deducting losses (assuming threre were no distributions  - box 16d).   the losses that reduce basis are those that are deductible  on your income tax  return which most losses and deductions are  (ignoring passive loss rules).  expenses which aren't deductible would show up in box 16c   - these are ignored for the time being.   as i said your deductible losses are limited to your basis. and TT  1040 doesn't handle this unless you complete form 6198 (at risk).     in most cases at-risk and basis have the same result but there can be a difference.   

 

hate to say this but an LLC might have been just as good as an S-Corp and you would not run into problems like having to file an additional return and running into having to compute basis. 

 

another issue with the S-Corp is the need to take salaries even if there are losses.  there are no salary requiremnts for members in an LLC.   

 

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