Deducting S-Corp losses from W--2 taxable earnings - how do I verify?

[ue1]

Hello,

Where / how do I validate that the S-Corp losses in my K-1 are deducted from my other taxable W-2 income?

The W-2 earnings are not related to the S-Corp.

TIA.

[MinhT1]

Your S-Corp loss coming from a Schedule K-1 is transferred to line 5 of Schedule 1 of your form 1040.

If you are using TurboTax Desktop. switch to Forms mode and check that line 5 of Schedule 1 of form 1040 is populated with a negative number.

If you are using TurboTax Online, you can preview your form 1040 by following these steps:

1. Open your return
2. In the left-hand column, locate Tax Tools, click on the drop-down arrow then click on Tools
3. On the Tools Center page, click on View Tax Summary
4. In the left-hand column, click on Preview my 1040
5. Your form 1040 will display.
6. Scroll down to line 5 of Schedule 1 and you should see a negative amount on this line.

[ue1]

Thank you, @MinhT1 .

I should have mentioned that my S-Corp basis (f7203) is at $0, due to an error I made in 2023 filing.

Is line 5 on 1040 schedule 1 a validation that the S-Corp losses are indeed deducted from W-2 earnings?

[MinhT1 · Accepted solution]

The IRS says in this document:

A shareholder is not allowed to claim loss and deduction items in excess of stock and/or debt basis. Loss and deduction items not allowable in the current year are suspended due to basis limitations and are carried over to the subsequent year.

If this is not the case, you need to amend your 2023 tax return to change form 7203 to allow you to deduct your 2024 loss.

If your basis is 0, then you have to file form 6198 to carry forward the loss.

The presence of a negative number on line 5 of schedule 1 means that the loss has been deducted from your taxable income.

[Mike9241 · Accepted solution]

What did you do regarding the 7203 for 2024?   It doesn't work to limit losses if you have insufficient basis

Example: if you had a $50K loss but had zero tax basis as reported on the 7203, the form will show the loss as a carryover  (line 47 column e), but in reality schedule 1 will show the $50K loss.

I would correct the 2024 7203 to show your proper tax basis at the beginning of the year. The IRS may question this because of the 2023 Form 7203 being incorrect.  

If there is a loss limitation due to insufficient basis, the form that needs to be used is Form 6198 - at-risk which should limt a loss deduction to your basis.