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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").
Deducting S corporation Losses
If your S corporation suffers a loss in any tax year, you can deduct your share of the loss against your other sources of income, such as wages you or your spouse earn working for another business, dividends and interest. However, the amount the loss you may deduct depends on your tax basis.
Tax Basis
Tax basis equals your stock basis plus your loan basis, if any. You stock basis represents your capital stock investment. If you lend money to the S corporation that you are personally liable for, the amount of such loan is added to your stock basis to determine your tax basis.
Loss Deduction Limitation
The amount of a loss in any given year thay you may deduct is limited to your tax basis. You may not reduce your stock basis below zero.
Example:
- Your capital stock investment in your S corporation is $10,000.
- You did not lend the business any money.
- Your tax basis is $10,000 (which is your stock basis).
- You own 100% of the stock in the S corporation.
- Your S corporation had a net loss of $15,000.
- Your spouse has a job with another company and earned wages of $30,000.
- You earned $100 in dividend income on stock you own.
- Your total joint income $30,100 (spouse's wages $30,000 plus $100 dividend income). You file a joint return.
Result:
You may deduct only $10,000 of the $15,000 loss because your tax basis is $10,000 (your stock basis). Your total income of $30,100 is reduced by the $10,000 loss to $20,100. The non-deductible portion of the loss, $5,000, is referred to as a suspended loss and may be carried forward to futures years indefinitely and deducted when you have sufficient tax basis to absorb the loss.
You must reduce your beginning stock basis of $10,000 by the $10,000 loss you deducted. This reduces your stock basis to zero. Remember, you cannot reduce your stock basis below zero. So, the suspended loss of $5,000 has to be carried forward.