Treatment of loss in S-corp - negative cash flow

[Stearman-809]

In 2017 my S-corp lost a great deal of money because of extremely low sales.  This was a temporary condition and I expect a banner year for 2018.  I have never run a loss in the 25 or so years I've been an S corp.  Usually I take excess profits as a dividend, and make a General Journal entry to net those dividends against Retained Earnings.  In 2017 I paid into the corporation and did not take any salary.  Do I show negative Retained Earnings this year, or must I formally make this a loan to the corporation?

[PatriciaV · Accepted solution]

Your cash payment into the S-Corp is considered a Contribution, which increases your equity. This transaction does not affect Retained Earnings.

Report this under Business Info >> Partner/Member Information. Edit the member info, and continue through the interview until you come to the Capital Summary page. Enter the amount you paid into the company as a Cash Contribution.

However, the loss you experienced this year will reduce Retained Earnings. This will be recorded automatically from your entries for income and expenses.

[Stearman-809]

Thank you, but that leads me to the next question.  I zero Retained Earnings each year, so they're negative as of 12-31-2017 till I make my final General Journal entries.  My basis in the corporation is $3,000, and my loss is about $12,000.  Can I take the loss personally for 2017, or must I wait and take the contribution back in 2018 (which should be a good year).

[PatriciaV]

The loss from the S-Corp flows to your personal tax return via Schedule K-1. You may take losses up to your basis, but anything over your basis becomes a loss carryforward. When you have income in the future, it will be offset by the loss carryforward.

[Stearman-809]

Thank you - I think I once knew that...  Does my basis include 2017 contributions?

[PatriciaV]

Yes, your basis would include any contributions during the year.