My single-member S-Corp has a 1120s tax return loss of (-$36,000). The S-Corp received $29,925 in forgiven tax-exempt PPP money, which made the adjusted book loss (-$6,568). The stock basis at the beginning of the year was $8,987, with a debt basis of $0. The stock basis at the end of the year was $2,419 with a debt basis of $0. In the personal income section of Form 1040, it says to enter Ordinary Income or Loss from Schedule K-1, Box 1 that is ($-36,493). The K-1 Box 16 contains items affecting shareholder basis: Code B- other tax-exempt income $29,925. The instructions say not to enter a loss greater than the basis. What should be entered as the loss?
The basis reported on Schedule K-1 is the "inside basis" of the shareholder, which may not be the same for the shareholder's "outside" basis due to transactions and income/expense allocations that may be specific to that shareholder's investment in the corporation.
The fact that a shareholder receives a K-1 reflecting a loss does not mean that the shareholder is automatically entitled to claim the loss. Because it is not the corporation's responsibility to track a shareholder's stock and debt basis, it's important that the shareholder computes their "outside" basis each year, as this determines the amount of potential tax loss that can be reported.
The link below provides the rules for calculating a shareholder's basis and and examples of how to apply those rules in various situations.
Unfortunately, we are not able to make those calculations for you.
Additional info:
IRS S Corporation Stock and Debt Basis