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Barbara Lamar
Barbara Lamar, Tax Lawyer, CPA
Category: Tax
Satisfied Customers: 188
Experience:  JD, MBA University of Texas at Austin, over 18 years representing small businesses
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Loss Carryover

Customer Question

Let’s say an S Corporation suffers a loss one year but then earns a profit in subsequent years. Is there a way to carry the loss over to the good year(s) to offset income?
Submitted: 11 years ago.
Category: Tax
Expert:  Barbara Lamar replied 11 years ago.
Since an S corporation passes its income and losses through to the shareholders, each shareholder should already have deducted the prior losses against other income. It's possible that one or more of the shareholders could have had a net operating loss to carry back or carry forward, but you can't do this at the corporate level.
Expert:  Barbara Lamar replied 11 years ago.
Jon Andrews, another Just Answer specialist, has suggested that I might want to expand my answer.

A shareholder of an S corporation is only allowed to recognize losses from the corporation to the extent he or she has basis in the corporation and/or is owed a debt by the corporation. Any s corporation losses that are disallowed because of lack of basis or debt risk can be carried forward. This happens at the shareholder level rather than at the corporate level, which makes sense. Different shareholders are likely to be is different positions with respect to basis and debt owed to them by the corporation.

Thanks for the suggestion, Jon!
Customer: replied 11 years ago.
>> ..an S corporation passes its .. ..losses through to the shareholders.. <<

OK. I see. In this case I am the 100% shareholder. And my 2004 business losses will exceed my income on my personal income tax statement. (I will report negative personal income.)

So I guess I should rephrase my original question like this: Can I carry forward personal (form 1040) losses over to 2005?

Thank you!
Customer

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