Tax law change on capital loss from s-corp


I have a small 1 person S-Corporation. The first few years I paid an accountant to do my taxes. I do not have revenues to my company, so I am using turbo tax to do this myself.

Last year I took a 4,000 loss on my company to my personal income taxes without issue. This year I have no revenues and I want to take a small $600 loss. $100 is for the state corporation fee and the rest is for shutting down and rolling over my corporate 401k. I have no revenues. In the past this was tax deductible.

However, when I entered this into turbo tax personal (I use turbo tax business for my k-1), turbo tax said this was not deductible. It asked me questions about being at risk and some kind of investment basis. Does anyone know what changed in the tax law? These are clearly expenses related to winding down my business. I don't understand why this isn't a deduction or maybe it is and what I need to enter? I have all my old tax forms from previous years.

Tax Corporation

asked Apr 11 '11 at 22:48
164 points

2 Answers


When you say that you only use Turbo Tax for your K-1, do you mean that you manually entered the information into the K-1, or did you go through the software's interview process, and let it create the K-1 for you? I doubt it is the first of the two, but if you did bypass the interview process and manually entered the information into the K-1, I would suggest you go back and let the software create the K-1 for you. You can always manually change things it got wrong.

It's hard to say what your problem is, but one thing to look at is what categories your income and expenses fall under. The IRS has rules and limitations on deducting expenses from one category, from income of another category. For example, generally you can only deduct passive expenses from passive income, and non-passive expenses must only be deducted from non-passive income. There are special rules about investment income (usually considered passive income). If this is your problem, you'll need to either read through the S-Corp IRS Forms and Publications, or consult an accountant.

answered Apr 12 '11 at 14:04
Zuly Gonzalez
9,194 points


You cannot deduct losses from your S-Corp in excess to your basis (investment). All the cash/assets you contributed to the business is your basis. All the distributions from the business (in excess to earnings) reduce the basis. If you lost more than that - you can only deduct it from the S-Corp income, not from your personal income.

answered Jun 20 '12 at 16:11
5,090 points

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