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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7021
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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I am full time employed by a company since 2008. Apart from

Customer Question

I am full time employed by a company since 2008. Apart from employment related income, I have S-Corp with 2 members. My ownership is 99% in the S-Corp and I provide all services and spend my majority of my time if I get work for the S-Corp. My question is below:
I filed S-Corp tax returns for 2009 and 2010 as there were income and expenses for S-Corp, along with my individual income tax. After that in 2011, 2012 and 2013, I filed "NIL" (all zero) 1120S for S-Corp as there were no income for 3 years. In 2014, I had income again and now want to file 1120S. For 2011, 2012 and 2013 there were 0 income but had certain expenses to keep S-Corp lights on. The amount of losses for 3 years is not higher but if I can claim, I would like to. My question is, in this given situation how can I carry forward my expenses (and so losses) of 2011, 2012 and 2013 into 2014 tax return? I want to avoid re-file/amendment of 1120S + 1040 for 2011, 2012 and 2013.
Thanking you
Submitted: 1 year ago.
Category: Tax
Expert:  Stephen G. replied 1 year ago.

Unfortunately, the only way to take advantage of those expenses would be to file amended returns for the S-Corp. for those years and then amended returns for yourself personally. If the losses can't be used in those respective years either due to insufficient personal income to offset, or basis issues in your investments in the S-Corp., then the losses may be able to be carried forward; but those are personal operating losses. Also, they would have to be carried back 2 years first before they could be carried forward. The only way to carry them forward without carrying them back first is if you make that election on a timely filed (including extensions) return (personal).

Is there some reason why you didn't file those S-Corp. returns claiming the expenses for those years?

Depending upon when you filed your 2011 return in 2012 (due 3/15/12 w/o extension), the 2011 year may be a "closed year" & that would mean that you can't amend that one. (If you filed on extension by 9/15/12, that year could remain open until 3 years after you filed the S-Corp. return for 2011). The other years would still be able to be amended.

Hopefully, you aren't talking about a lot of money here, and/or the S-Corp losses wouldn't have been able to be used. If you can give me more detailed information with respect to the numbers involved for both the S-Corp & you personally, as well as your tax basis in the S-Corp., perhaps I can offer additional comments.

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Customer: replied 1 year ago.
Thank you Stephen for quick response.I did not file those S-Corp returns ('11,'12 and '13) with assumptions that I would be able to claim these expenses later on. But I was wrong. Can S-Corp P&L carry forward previous year losses and added to 2014 P&L?If I cannot carry forward S-Corp P&L losses and balances from past year, how should I manage/tally account balances for 2014?From numbers perspective, per my estimate total S-Corp expenses of these 3 years would be between 7K to 10K (to keep lights on for 3 years). My employment income at that time was ~110K per year.
Expert:  Stephen G. replied 1 year ago.

No. Unfortunately not. S-Corps don't have carryforward losses. The carryforwards arise at the individual level. Unless you have substantial itemized deductions that eliminated your personal income taxes in those years, or you have a tax basis problem with your investment in the S-Corp., you should amend the S-Corp returns for at least 2012 and 2013 as well as your personal returns for those years & you will be due refunds plus the IRS would be required to pay you interest (not a lot given the taxes involved, & the interest rates but something). At least you filed returns for the S-Corps, as if you hadn't filed returns & the IRS hadn't come looking for them, it wouldn't make sense to file now as you could potentially be dealing with substantial non-filing penalties which would apply at the S-Corp level, even though you wouldn't have owed any income tax as you are still required to file & you would probably not get out of all 3 years of penalties. As far as your 1% partner, unless it is your spouse & you file joint returns, that individual would not have to file amended personal returns to claim the losses as I'm sure it wouldn't be worth it & there's no problem with not claiming those small losses.

I'm sorry that I don't have a more expedient answer/solution for you, but that's just the way it works. Some people in your situation have simply claimed those unclaimed prior year expenses in the current year, but that is incorrect and if you were to be examined, they would be disallowed and you could be subject to penalties for intentionally disregarding the regulations; ignorance is bliss but not an acceptable excuse, which is why I can't suggest that you take that approach, as sometimes these things have a tendency to backfire or rear their ugly heads at a particularly inopportune time.

I'm not sure I understand what you mean re "how should I manage/tally account balances for 2014"? What did you do with the expenses in "tallying" your "P & L losses" in each of the preceeding 3 years? If you are talking about for tax purposes, you simply can't deduct them in the current year. A simple way to deal with them is to charge them to your shareholder loan or investment account presuming that you paid them with S-Corp funds. You can pretty much account for them anyway you wish as long as you don't deduct them for tax purposes. As an example, you can also treat them as you would any other non-tax-deductible expense, such as you would disallowed meals & entertainment, personal use of a vehicle, etc.

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