Responses to your questions:
- As noted by @Mike9241 you need to either report income or claim a loss in the year that it was received or incurred the loss. The reason for this is simple......the IRS doesn't want taxpayers to report income or loss in any year they chose. Too much opportunity for manipulation of income.
- As open account debt, these are not tracked separately until they exceed $25,000.
- Yes you should include the $600 on Form 7203 Part II.
- Form 7203 is only an informational form. The form was developed so the IRS could have some consistency in how S corp basis schedules were maintained.
- In order to have TT utilize the $600 on your tax return, you will need to complete Form 6198 and link it to the S corporation K-1.
- Additionally, since this was in a prior year, you would have to amend that years tax return in order to benefit from the debt basis; no carryover.
- With open account debt, which is no different from a formal note debt, you need to restore this back to the $600 before you can repay it. The difference between open account debt and a formal note debt, is that if you repay open account debt with a reduced basis (such as yours "0"), this will be deemed ordinary income to you. With a formal note, repayment of reduced basis debt is deemed capital gain.
- Using debt in an S corp can be messy.
*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.
