Salary as loss in Scorp

[onurcoo]

Hello, 

My S-CORP that did not have any income/earnings this year. However I paid salary my self during year.  

For example, company had 100K in bank account in the beginning of the year, and after salary (60K) paid,  40K is left on companies bank account. 

My question is that: 

1- Does the salary (60k) count towards being a "loss" for the company?

2- Can I use the loss amount (60K) as deduction in my personal return (thru K-1) ?

Thanks much for any input! 

[tagteam]

Yes, the loss will count as it is a nonpassive loss (which will appear on page 2 of your Schedule E).

The loss will be deductible (i.e. reduce) other income on your return (via your K-1 entry).

[onurcoo]

Thanks for the reply tagteam! 

I guess I need to enter "Adjusted Basis" in the personal return to be a able to take the deductible? 

If so, should I enter the amount of money  left in corp's bank account (100K) as "adjusted basis"? 

Thanks much again! 

[tagteam]

You need to attach a basis computation to your return; you can find a template of sorts and more information at the IRS web site linked to below.

See https://www.irs.gov/instructions/i1120ssk#idm139641012475904

[onurcoo]

Thanks so much!

[onurcoo]

I think there is a problem with Turbotax software. 

According to instructions of 6198, line 21 supposed to take the lesser amount of line 5 or line 20. 

Line 20 is 0 and Line 5 is a negative number. 

Line 21 appears as 0, but it should be the number on Line 5. 

Where I should report this? Any idea? 

[tagteam · Accepted solution]

@onurcoo This is for your personal income tax return? You have an amount that is not at risk?

Parenthetically, do not forget that Line 21 is the lesser amount of line 5 or line 20 where Line 5 is treated as a positive number.

[onurcoo]

Yes,  this this for my personal return. 

I cannot get a good grasp of "not at risk" for some reason. 

I left 100K in the companies account (SCORP) (which was earned by consultation) as of December 2018 and paid tax thru my personal return for 2018 return. 

And used that cash(100K) to pay myself salary(60K) during 2019.

So, does that 100K amount count as at risk? does that amount count as investment basically? 

All I think that, 60K W2 salary should not count as income in my personal return. Or should it? 

That is the reason I am trying to offset that 60K W2 Salary by showing a loss (60K) from the company thru K1 entry. 

[onurcoo]

I have found that I am not subject to the at-risk rules, since I am actively participate in the operation. (This is a one man consulting company) 

https://ttlc.intuit.com/community/after-you-file/discussion/at-risk-not-at-risk/00/117179

[tagteam]

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@onurcoo wrote:

I cannot get a good grasp of "not at risk" for some reason. 

---

Generally, and broadly, it is an amount you borrow for which you are not liable for repayment. If you funded your S corporation with your own personal funds (even if they were borrowed but you were personally liable for repayment), those funds would be "at-risk".

Read through the At-Risk section of IRS Publication 925 (link below) for more information.

https://www.irs.gov/publications/p925#en_US_2019_publink1000104691