Can my losses in my single-member LLC (S Corp status) offset my personal capital gains I made in crypto in 2021?

[jd4884]

I've researched this but I can't find a definitive answer for this question:

Can my losses in my single-member LLC (S Corp status) offset my personal capital gains I made in crypto in 2021?

• So far, I've lost about $20,000 in my single-member LLC (S Corp status) in 2021.
• I've been working on my business full time from my house all of 2021, so that's active income (loss), am I correct?
• I've also made about $80,000 in crypto in 2021.
• I've made no other income, nor had a salary from any other job in 2021.
• When I file my taxes, will my $20,000 loss offset my $80,000 gains from crypto?
• I'm in Florida.

Thank you.

JD

[Critter-3]

• When I file my taxes, will my $20,000 loss offset my $80,000 gains from crypto?   Yes

[fanfare]

what is the nature of your business conducted through an LLC?

[jd4884]

My LLC runs various online stores selling digital services, but I spend a lot more on Google Ads then I bring in in revenue in an attempt to get the word out and build a clientele.

[Mike9241]

yes assuming you have tax basis in the S-Corp to take the $20K loss.

[Anonymous_]

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@Mike9241 wrote:

yes assuming you have tax basis in the S-Corp to take the $20K loss.

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@jd4884 probably needs to use the basis worksheet.

See https://www.irs.gov/instructions/i1120ssk#idm140355075930352

[jd4884]

• I own 100% of the LLC and work on it full time.
• I've invested about $12,000 into it in 2021 from my personal checking account + all of my time.
• The LLC currently has about $20,000 in losses (too many expenses, not enough income) in 2021.

Is my basis in the LLC only $12,000? And that's the most I can write off? Not the full $20,000 in loses?

[Mike9241]

you say you invested only $12K but have losses (excess of expenses over income) of $20K. what accounts for the $8K difference?  apparently, this is the business's first year. you should consult with a tax pro since things like proper bookkeeping, the need for a salary (the IRS doesn't like it when S-Corp owners who perform services don't take salaries thus escape paying Medicare and Social Security taxes. the first few years MAY skip through) 

[Critter-3]

Since you only put in 12K  and have expenses larger than that  you must have some on credit cards and/or loans ... if you are personally responsible for those debts then that also increases your basis ... seek local professional help for the first return (Due 3/15/22 not 4/15) to get it done correctly and get educated in how to set up/keep the books and the need for a payroll in the future. 

[jd4884]

Hi,

Let me clarify:

• I meant that i invested $12,000 in capital this year - meaning I transferred money from my personal checking account into the business account.
• The LLC had money from previous years in it and the LLC is also spending a lot more this year on advertising. The LLC has had about $30,000 in expenses this year, while only bring in about $10,000 (thus I said, $20,000 in losses).
• I've been the only one to ever fund and own the LLC.

So it sound to me like me that my basis in the LLC is $12,000, is that right?

[Critter-3]

You may have added new capital this year to increase the basis you have from the prior years ... so if your bank account is not overdrawn and you don't have outstanding bills on a loan or CC then your basis must be higher than the 2021 additional capital added ... if you have not been keeping track of all the personal deposits and withdrawals  you have done over the life of the business then you will need to go back and compute your lifetime basis figures.

[Anonymous_]

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@jd4884 wrote:

• I've been the only one to ever fund and own the LLC.

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I generally agree with @Critter-3, but will add that, as a single-member LLC, if you do not have non-recourse financing (debt for which you are not personally liable), then it is unlikely that you have insufficient basis to deduct the net loss.

[jd4884]

Thank you fellow US tax payers! 😂

Will Turbotax help me compute all of this if use its wizards?

[Anonymous_]

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@jd4884 wrote:

Will Turbotax help me compute all of this if use its wizards?

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No. TurboTax will not help you calculate your basis. 

The program will, however, ask you if there are amounts invested in the business that you are not at risk of losing.

[Mike9241]

here's a link to IRS webpage about computing basis since Turbotax does not

https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-stock-and-debt-basis 

In computing stock basis, the shareholder starts with their initial capital contribution to the S corporation or the initial cost of the stock they purchased. this is not completely accurate. stock basis also goes up for subsequent capital contributions.

also not discussed is loans an S-Corp shareholder personally makes to the corp.  this also adds to tax basis and is subject to reduction for losses applied and repayments. repayment of a reduced basis loan can result in taxable income to the shareholder.  also, it must be a direct loan from the shareholder.  say the shareholder goes to a bank and gets a loan in the name of the corp and signs a personal guarantee - this does not add to basis.  he would need to personally borrow the money and then lend it to the corp.

while non-recourse financing such as a mortgage adds to basis in a partnership, not so in an S-Corp.