Can my S-corp profit go against my huge stock market loss?

Question

In the past 2 years, I have lost more than $180,000 in the stock market. In order for me to claim the loss in my tax return, I can only do $3,000 a year. So it will probably take me 60 years, if I make no more gains nor losses.
I wanted to know if I have a S-Corp, will my profit (as a shareholder) be claimed as capital gains that I can claim against my $180,000 stock market loss.

So for example, if my S - Corporation makes profit of $100,000 after paying my normal salary, will this $100k go against the $180k, leaving me with $80,000 of losses to claim for the next few years?????

I have asked a few accountants that questions and none of them have an answer.

I guess it's a good question

Answer 1

I suppose it's a good question, but you're not going to like the answer.

An S-Corp is only a pass-through entity. It doesn't pay any taxes, you do on the income that passes through to you. Any profit from the S-Corp over and above any salary passes straight to your Form 1040 as ordinary income, it is NOT a capital gain. By the nature of an S-Corp, a capital gain from it is not possible.

So, you'll have to take those losses in $3,000 clumps, at least as far as your S-Corp profits (or other ordinary income) go anyway. Should you have a big "winning" year in the stock market in the future you CAN use the losses carried forward against a big CG hit in any future years.

The accountants you asked must not have been tax specialists. Many in fact are not and specialize in other areas of accounting such as audits or due diligence. From a tax standpoint, this is a Taxes 101 question.

Answer 2

Active businesses are not like capital investments. Hence a loss on one cannot offset directly a gain on the other. As stated by my colleague, capital losses are limited to $3000 loss per year assuming you have no other capital GAINS to use against the losses.

The only way the S-Corp gains could be used againt the loss is to sell the S-Corp stock for a gain. Then the gain would be offset by the capital losses.

- A Damn Fine Tax Advisor

Answer 3

Frederick is totally wrong with his answer. Your S-Corp income will be reported on Schedule E of your tax return, and your stock market loss carryforward is reported on Schedule D. They cannot be offset against each other. Now, if you sold your stock that you owned in the S-corp, and you had a gain on the sale, you could use the gain to offset against the $180,000 in losses.

Answer 4

yes