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S Corporations generally do not pay tax at the corporate level. The tax structure of an S Corporation is designed so that any income or loss of the S Corporation is filtered down to the individual shareholders, who then report their share of the income or loss on their personal income tax returns. If you received a K-1 form from the S Corporation of which you are a shareholder, and it reported that you have ordinary income of $23,000, then you would need to report that on your regular income tax return as ordinary income, just the same as you would wages. You can, of course, continue to take whatever deductions you might have against your ordinary income, such as mortgage interest, property taxes, etc., but there is not offset in particular that would apply to income earned from an S Corporation, regardless of what your investment was in that corporation.
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That is correct. Your "basis" in the S Corporation is the amount you invested to become a shareholder. That amount is not deductible against any ordinary income that the S Corporation earns. The only time that your basis will be allowed as a deduction is if the assets of the corporation are sold.
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