Hello,
I was hoping to get some guidance to ensure I am filing correctly. I am a single member S Corp and for 2023, I am showing a loss in item F. For the sake of this discussion let's call it $5k.
For 2024, I anticipate profits, let's call it $100k.
1. Am I correct to assume the $5k loss from 2023 can be carried over to 2024 making the total assets $95k?
2. My 2023 K-1 is showing a loss in item 1 for ordinary business income. I am reading that item cannot be negative, can anyone confirm? I am also taking a salary.. how would that factor into my personal taxes?
Thank you!
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First, S corporations do not carry forward losses from one tax year to the next tax year; net business profits (income) and net business losses are passed through to the shareholder(s) on Line 1 of K-1 (1120-S) each tax year.
Second, are you saying that your assets are showing as a negative number on Item F of your 1120-S?
Next, your salary would be a deduction for the corporation on your 1120-S and reportable on your 1040 (personal tax return) as W-2 income.
Finally, your S corporation can pass a net loss through to you, as a shareholder, on Line 1 of your K-1 but you need to have basis in the corporation in order to recognize that loss on your personal income tax return.
I am also going to page Champ @Rick19744 for further input.
Yes, I am showing a negative number on Item F of the 1120-S as my total income was less than my deductions. Is that allowed?
I am the only shareholder in my S Corp and own 100% of the corporation. Are you saying that if I have a negative k-1 I will be able to deduct that from my w-2 income that I paid to myself.
Thank you!
Yes, I am showing a negative number on Item F of the 1120-S as my total income was less than my deductions. Is that allowed?
I am the only shareholder in my S Corp and own 100% of the corporation. Are you saying that if I have a negative k-1 I will be able to deduct that from my w-2 income that I paid to myself
we can't see your return but are you saying that item F on Page 1 of the 1120S is negative? That usually only occurs when there's a cash overdraft. however, putting shareholder loans that you made to the corporation on line 7 of schedule L rather than where they belong which is on line 19 can also produce that result.
since you have a loss when you do your 1040 you'll need to complete form 7203 to justify to the IRS that you have basis to take the losses. if not the losses to the extent they exceed your tax basis will not be deductible. you don't lose them. They carry forward until either there's sufficient profit or you otherwise increase your basis in the corp. Be wary and seek professional advice if you repay reduced basis loans. the tax trap is that you will generate taxable income
A few comments on this issue:
Thank you for all of this- it is very helpful.
Just to be clear, ordinary business loss from the corporation can show up and produce a negative K-1, which can be used to offset W-2 income paid by the corporation to the same singular shareholder if the corporate loss is less than W-2 income?
This is for a newly formed corporation
@luckyaces09 wrote:Just to be clear, ordinary business loss from the corporation can show up and produce a negative K-1, which can be used to offset W-2 income paid by the corporation to the same singular shareholder if the corporate loss is less than W-2 income?
Yes, and @Rick19744 and @Mike9241 will confirm (I believe) that you need to have sufficient basis in order to recognize the loss (hence, the reference to Form 7203 in their posts).
@luckyaces09 NO NO NO if the k-1 is showing a loss you must have tax basis for the loss the be allowed. your wages have nothing to do with your tax basis. your wages can be fully taxable but none of your k-1 loss may b deuctible. Consult a tax pro, we can see your return and a negative number in box F gives us pause as to what your basis is
over simplified example
revenue $100
salary $60
other expenses $50
k-1 loss $10
balance sheet cash overdraft $10
retained earnings deficit of $10
M-1 lines 1 and 8 show a loss of $10
M-2 column a line 4 and 8 Could also show a negative $10
in this case the wages are fully taxable but without tax basis the loss is not deductible
Just to summarize the issue:
As I have no desire to take the loss on my personal return, can I just carry over the loss on my corporate return to the next year and offset corporate gains?
No. S corporation net profits and losses are pass through to the shareholders each tax year.
I can't emphasize it enough that you need to track your basis from the start of your company. I discovered this a few years after marrying my husband and taking over the books for my husband's company that was over 25 years old. His tax professionals never told him this. You need to gather all the info on what you put into the company and check the Calculate Shareholder stock and debt basis limitations worksheet in your Federal business return. Turbotax makes this task easy. I tried to figure this out by reading on the IRS website and it was quite impossible for me and I have a decent IQ. You can go back into to forms and look at the first few pages to enable it if you didn't do so already.
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