I have not filed the S-Corp taxes yet. Thanks again for all the detailed explanation.

OK. I think this is the piece I am missing may be then. Where do I put the basis in Turbo Tax when filing my personal taxes so that it doesn't recognize it as i...

That makes sense and I do have a cost basis similar to how you have mentioned. However what is not clear is that on K-1 it shows up as 8000 on line as 16(E).The...

No there was income, even after paying payroll we had about 10K profit left. So we took out 8K

Thanks a lot for the answer. I will answer few missing points : 1. Yes we did pay a salary to ourselves via regular payroll.2. I don't have a formal loan agreem...