" If the S corporation is not making a profit, then your K-1 is not passing through profit and hence there should not be any tax implications to the shareholder."
This statement needs to be clarified because there certainly ARE tax implications, even in a situation where the S-Corp is sustaining losses. Those losses REDUCE YOUR BASIS in the S-Corp stock, affecting your capital gain or loss when you sell your stock.
"I thought I read that K1's were reported for any income, the pass through taxes were for any income at all. Am I mistaken?"
I don't really understand that sentence. ALL ACTIVITY of the S-Corp - income, loss, distributions, activities that require special handling on your personal income tax return, etc. - MUST pass through to the shareholders. As long as the S-Corp exists the S-Corp must issue its income tax returns - Form 1120S - and the associated Schedule K-1(s) to its shareholders and the shareholders must consider how these Schedule K-1's affect their individual income tax returns.
