JR. The K-1 that you receive as a shareholder reflects the activity of the S corporation. While the S corporation can generate income, that does not mean there is "net income". Net income (income less expenses) is what is passed through to the S shareholder on the K-1 Part III line 1.
In addition, the S corporation is required to separately state a number of items, which are also reflected on your K-1. If the S corporation has interest income from a bank, then this figure is separately stated on the K-1. Even though the S corporation reflects a net loss from operations on line 1 of the K-1, you will still pick up the interest income that is also reported on the K-1 in line 4. Other separately stated items would include any capital gains or losses.
Just once again, if the S corporation is not generating any current year profit (income less expenses), you should not have any current year tax to pay at the shareholder level (your 1040). You don't indicate what type of income the company generates to provide additional clarification as to whether separately stated capital gains or losses are a significant factor for the company.
S corporations K-1's can be confusing and complicate the preparation of an individual 1040. You may want to seek the advice of a tax professional who can spend an hour with you one on one to help you understand the tax implications of the K-1 to you as a shareholder.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
