Allocating Losses to S corporation Shareholders

A loss is allocated to each shareholder on a daily basis. This means, if you sell your stock before year-end, and the corporation ends up with a loss for the year, you cannot deduct the entire loss.

You must allocate the loss according to the number of days you owned the stock and your percentage interest in the corporation.

Example:

  • You sell all your stock on June 30, 2013.
  • You owned a 50% interest from January 1, 2013 through June 30, 2013 (181 days).
  • The corporation has a $10,000 loss for the year ending December 31, 2013.
  • The daily loss is $27.39726 ($10,000/365).

Your may deduct: $2,479 ($27.39726 x 181 x 50%).

How S corporation Shareholders Claim a Loss

S corporation shareholders claim their share of S corporation losses on Schedule E. Enter your pro-rata share of the loss reported to you on Schedule K-1 on Schedule E, Part ll.

Then, carry the loss from Schedule E (in the Part V Summary) to Form 1040, Line 17 as a negative number.

File your personal and small business taxes (Schedule C)