How to Calculate Shareholder's Share of Current Year Loss

[storytyke]

I have a LLC, filing as S-Corp. I am one of two shareholder's. Current ownership split, is 70% for me, 30% for my business partner. As part of our agreement, this year I was the only person to contribute money into the business as capital.

This year we had a $7,000 loss. Because I was the only one that contributed capital, does that loss go only to me? Or is it broken out 70/30? In other words, does my business partner who did not invest capital into the business this year, get a benefit of a 30% loss being passed through to their own taxes?

[Anonymous_ · Accepted solution]

The split does not change per agreement but, of course, you would enter your contribution into the program.

Capital contributions notwithstanding, the member who owns the minority interest can get the benefit of the loss provided that member materially participates in the business and has sufficient basis. 

[storytyke]

That shareholder has a $0 basis in the business currently. Does the remaining 30% loss then go to me, who contributed all of the capital?

[Anonymous_]

No, that member simply cannot recognize the loss since the member's basis is zero.

[note that the entity you have is still an LLC - it is treated as an S corporation for federal income tax purposes only]

[Mike9241]

an entity treated as an S-Corp is far different than a partnership.  in an S-Corp you own a certain percentage and he owns a certain percentage. you say 70/30 profits and distributions must be split that way. failure could result in automatic termination of the S-Corp election.  however, it is possible for both of you to agree that that $7,000 bought more shares in the corp for you.  so that would allow a different allocation.    now you no one of the issues of an S-Corp when there are multiple shareholders and not everyone wants to kick in their share when needed.   see a lawyer.