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Need Some Deductions for 2011?

Don't overlook these!

10 Oddball Tax Deductions

11 Most Overlooked Tax Deductions

Updated for 2011

Business Structures

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Reducing Your S-corporation Tax Basis In the Correct Order

Losses reduce your tax basis in the following order for S-corporations:

Stock basis is reduced first (but not below zero).
- Then, if you have any additional loss.
Loan basis is reduced next (not below zero).
- If any loss still remains, it is not deductible. It is a suspended loss.
  - A suspended loss may be carried over to future years, indefinitely until you have sufficient tax basis.

Restoring Your Tax Basis In the Correct Order

Restoring your tax basis in the following order for S-corporations:

Loan basis first to its original amount, then
Stock basis

Example:

Tax basis adjustments-

Your stock basis at the end of 2011, before adjustment, is $5,000
Your loan basis at the end of 2011, before adjustment, is $3,000
Your tax basis, before adjustment, is $8,000 (stock basis $5,000 plus loan basis $3,000)
The S-corporation has a $10,000 in loss in 2011
You actively participate in the business

You may deduct $8,000 of the loss in 2011 on your personal tax return (up to your tax basis). You have a suspended loss of $2,000 (loss, $10,000 minus you deductible amount, $8,000).

Basis adjustment: You first reduce you stock basis by $5,000. Your adjusted stock basis in now zero ($5,000 minus $5,000).

Next, you reduce your loan basis by $2,000, the excess loss. Your adjusted loan basis is now $1,000 ($3,000 minus $2,000).

To restore your tax basis in a subsequent year:

First, increase your loan by $2,000 to get it back to the original $3,000.
Next, increase you stock basis.

Cover your loss!

If you expect to incur a loss but won't have enough basis to deduct the full amount of the loss, increase your basis by either lending or investing enough money to the corporation to bring your basis up to the amount of the loss.

In the above example, you could added $2,000 to your stock basis or loan basis before the end of the year to cover the excess loss above your $8,000 tax basis. Then, you could have deducted the entire $10,000.

S-corporations: Allocating Losses to S-corporation Shareholders; How S-corporation Shareholders Claim a Loss

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