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03 - Accounting & Taxes Accounting Help & Tax Strategies

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  #1  
Old 04-14-2008, 10:34 AM
SkyDriver
 
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Default Tax Basis and Carry Over

Hi I operate a S-Corp and we ended up with a loss (~$10,000) this year. I already filed 1120S & K1, but just realized that the loss exceeds my tax basis.

I think the proper way to do is to carry over the loss to the next year. But where do you do carry over, in 1120S or 1040? Did I make a mistake in 1120S & K1 by stating the loss more than the basis?

Thanks for your help,

Jay
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  #2  
Old 04-14-2008, 11:24 AM
Evan
 
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What created this loss? Hopefully it wasn't a Section 179 deduction, as those cannot create losses.

You have two problems with this loss: it exceeds your basis, and exceeds what you would otherwise be able to claim in one year. You may only claim up to your basis, and everything beyond that is disallowed and can be carried forward in years where you have a basis. Also, the IRS limits how much of a loss you can claim on your 1040 so they can collect something from you.

The good news is that these losses can be used in future years against other income as they carry forward. But you need to increase your basis in order to do this. Either contribute more money or try to earn a profit.
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  #3  
Old 04-14-2008, 02:39 PM
SkyDriver
 
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Oh, interesting, thank you. I was confused (I might still be confused.) The "loss" does not exceed the basis by much and 1/4 of those "loss" is I think section 179 in form 4255. So sounds like you mean I should not take consideration of 179 deduction into the "loss"?

I need to do more research, but in the form 1120S, there is a "Total Income (loss)" and there is also a "Ordinary Business Income (loss)". Now I'm not sure which one should be compared with the basis?

Thanks,

Jay
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  #4  
Old 04-15-2008, 01:53 AM
SkyDriver
 
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OK, it looks like the decision to whether carryover the loss to next year is made in form 1040. At least I did not make a mistake with 1120S/K1. Sigh of relief. So with ~ ($10,000) loss in K-1, should I just put about ($5,000) in line 17 of the form 1040? (I'll still leave some positive basis for whatever reason.)

Please help. Thanks,

Jay
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  #5  
Old 04-15-2008, 11:01 AM
OldJack
 
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You probably should have a tax pro review your tax returns for possible amending. The amount of the loss deductible and carryover is calculated on form 6198, "At-Risk Limitations" and attached to your 1040 tax return. Contrary to popular belief a S-corp tax return is not really a do it yourself project.
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  #6  
Old 04-15-2008, 03:31 PM
SkyDriver
 
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Default

I'm thinking of hiring a pro this year with more sales. Right now I'm thinking of carryover all the loss to 2008 (and the pro will figure it out next year.) Do you know how do I do that?

Thanks,

Jay
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  #7  
Old 04-15-2008, 05:36 PM
Evan
 
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Jay,

Section 179 is just a nice way to write off your assets much quicker than depreciation otherwise would. If your net income for the year was $5,000 then only $5,000 could be deducted under Section 179. It cannot create a loss. If it is, you're not preparing your return correctly and as Jack pointed out, you should probably have a professional prepare your return. It is worth noting that while the 1120S is a pass through entity, it must have sufficient income to take a 179 deduction before your eligible to do it on the personal level. It's also possible, and happens, that your S-Corp can take the 179 deduction but you cannot on your 1040 because it exceeds your earned income. In that case, you've done poor tax planning, as you really need to consider the personal impact the S-Corp actions will have on each of the shareholders.

Section 179 does not show up on the main page of the 1120S return. It appears on Schedule K -- line 11 -- and Schedule K-1. If you had a loss for the year before any Section 179 deduction, then you're not allowed to take the 179 deduction. I don't know how you did it. Line 12 of 4562 states "Business income limitation" which wants the lesser of your ordinary business income or $125,000, but not less than zero. If you have a loss, it is less than zero, and you're not eligible for the deduction at all.

Your loss is also limited to your basis. It doesn't matter whether it exceeds your basis by five dollars or five thousand dollars. Your basis is whatever you contributed and can increase or decrease based on your percentage of income. Your loss is the net loss you have multiplied by your percentage of ownershp.i So if it was a $10,000 loss and you owned 30%, your loss is $3,000.
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  #8  
Old 04-15-2008, 09:55 PM
SkyDriver
 
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Thanks. I realize that I misunderstood 179, but otherwise there is no error in my 1120S preparation done by TaxCut.

Here is what I'm going to do. I'll enter zero for line 17 of 1040. I'll not attach the schedule E. I'll not attach form 6198. I'll enter my 2007 loss in 2008 tax with PYA and schedule E & 6198.

Hope this will work.

Jay
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  #9  
Old 04-16-2008, 02:10 AM
SkyDriver
 
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e-filed 11:50pm pdt. let's see if irs knocks the door or not.

thanks,

jay
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  #10  
Old 04-18-2008, 11:35 PM
Evan
 
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If you're using TaxCut, it should be able to figure this stuff out for you.

Of course, it's calculations are only as good as what information is provided to it by the user.
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