How do I handle large business losses??

Question

I have taken an enormous business loss for a business I had filed as a corporation. How do I show these losses in my tax returns? I need to know what the best way to handle this is. When can I post the losses? Only after the loss is realized (when the business is sold)? How much of the losses can I show in a single year? I am praying that there is some way to show this on my personal taxes, as this is a total loss of a small fortune. Thanks for any and all advice!!

Answer 1

C-corp or S-corp?

C-corp, losses remain with the business, and get either carried forward to use in the future, or carried backwards if taxable income in the past.

S-corp, you will get a K-1 at year end to show your share of the loss. You would report it on Schedule E of your personal return.

Answer 2

Assuming this an S-corp, you need to ask a few questions
1) Do you have basis?
2) Is your basis at risk?

If you started up the company, you stock basis would likely be your pro-rata share of AAA (see p. 4 of the 1120s return) plus any loans you have made to the company (debt basis). If your basis is greater than the loss, your investment is at risk, and you materially participate (500 hours is the easiest test), then you can deduct the losses as mentioned in other postings. If this results in a NOL on your personal return, consider filing a 1045 prior to 12/31 of the year your original return was due. The 1045 will allow you to carryback your losses 2 years (3 if it is a casualty) without all the hassle of amended returns.

Best answer- find a qualfied accountant and mention loss, basis, at-risk, material participation, & 1045 and have him/her prepare your returns.

Answer 3

I agree w/ the other answers w/ 1 exception. The loss from the C will show up on your personal return as a capital loss equal to the amount of money you contributed to the corp.

This will be treated as a sale of the stock on Sch D. Losses will offset other capital gains and will be carried forward until used.

The loss on your 1040 from the stock may be different than the loss on the business return (form 1120).

Answer 4

S-Corp or C-Corp.....there is a big difference.

C-Corp - Considered a separate entity for tax purposes and does not effect your personal return.

S-Corp - Considered a pass-through entity for tax purposes. Profits and Losses are reported on your return through Schedule E.