Todd owns stock in an S-Corporation. Todd\'s share of the corporation\'s loss fo
ID: 2481113 • Letter: T
Question
Todd owns stock in an S-Corporation. Todd's share of the corporation's loss for the year is $25,000. He receives a k-1 which contains this amount. His adjusted basis in the corporations stock is $10,000. In addition, Todd has a loan outstanding to the corporation in the amount of $13,000.
a) what amount, if any, is Todd entitled to deduct with respect to the loss?
b)If any amount of the loss cannot be deducted this year, what happens to it?
c) What is Todd's stock basis and debt basis at the end of the year?
d) If Todd's share of the S Corporation profits next year is $19,000, what are the tax consequences to Todd?
Explanation / Answer
Sol:
1. A shareholder is not allowed to claim losses and deductions in excess of stock and debt basis.
Stock basis = $ 10000, debt basis = $ 13000
Thus Todd can’t claim deduction more than (10000+13000) 23000.
2. Losses and deductions not allowable in the current year are suspended due to basis limitations. Suspended losses and deductions due to basis limitations retain their character in subsequent years. Thus balance $ 25000 - $ 23000 can be suspended to next year.
3. Todd's stock basis and debt basis at the end of the year is $ 10000 & $ 13000 respectively.
4. Todd's share of the S Corporation profits will be liable for tax.