highlight from the S Corp seminar...
Lot of time on basis issues for loss. Many taxpayers simply drop the loss on the K-1 to the 1040. Audit issue #1 is where did the money come from to lose? (that is a direct quote of the heading for a nine page discussion in the manual) Big issue is if the corp borrowed the money to lose, the shareholder will not get basis and the loss is suspended.
If the shareholder put it in, nail it down as to how (contribution, debt?) because it makes a big difference on the treatment of distributions.
Speaking of suspended losses due to basis:
Let's say in year 2 there is a profit, how do we show that offsetting suspended loss on the return? Add a second line to the Sch E labeled something like "Year 1 suspended loss carryover" Don't net the amounts from Year 2 and Year 1 carryover or you will have k1 matching problems.
Lot of time on basis issues for loss. Many taxpayers simply drop the loss on the K-1 to the 1040. Audit issue #1 is where did the money come from to lose? (that is a direct quote of the heading for a nine page discussion in the manual) Big issue is if the corp borrowed the money to lose, the shareholder will not get basis and the loss is suspended.
If the shareholder put it in, nail it down as to how (contribution, debt?) because it makes a big difference on the treatment of distributions.
Speaking of suspended losses due to basis:
Let's say in year 2 there is a profit, how do we show that offsetting suspended loss on the return? Add a second line to the Sch E labeled something like "Year 1 suspended loss carryover" Don't net the amounts from Year 2 and Year 1 carryover or you will have k1 matching problems.