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Old 11-25-2014, 11:07 PM
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Do K-1 Losses offset Short Term Capital Gains?

I am the sole owner of a S Corporation. I am running payroll for myself and will be issuing myself a W-2 the next tax season. When I file taxes for the corporation, I will show a loss on the K-1.

I have some short-term capital gains from buying/selling stocks in my personal name in the stock market that is unrelated to my S Corporation.

1. My question is if I can offset the short term capital gains from the selling of stocks with the losses on my K-1?

2. If I need to infuse additional money into the S Corporation, should I do it as a loan to the S corporation or any other way from a tax point of view?


Thanks in advance.



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Old 11-26-2014, 03:40 AM
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1. My question is if I can offset the short term capital gains from the selling of stocks with the losses on my K-1? ==>>>Correct;you need to report your stcg on 1040 line 13 while you report your capital loss on Sch K-1 of 1120s on Sch E of 1040 and on 1040 line 17.you can offset capital gains that were held less than a year by using your current capital losses. These are call short-term gains and taxed at your regular income tax rate at whatever tax bracket you are in.you may
use the remaining losses to offset the gains that were held more than a year. If your losses still exceed your capital gains,then you may deduct up to $3,K of losses on your ordinary regular income.Losses in excess of your gains and your $3K allowance can be carried forward to next year. With the excess, you can offset next year's capital gains or use up to another $3K loss


2. If I need to infuse additional money into the S Corporation, should I do it as a loan to the S corporation or any other way from a tax point of view?========>>yes you can; at year end, the S corp need s to document the loan balance, issues a 1099INT for the interest paid to you. When you loan money to your business, you should be paid back with interest. The interest is taxable to you, and deductible to the business.so you will receive annual interest based on the balance and get repaid as the company sees fit.aslongas you want to lend money to your S corp, you need to document the transaction. If you give money to your business to purchase inventory and the company defaults on the loan, you may be qualified to write off the loan as a business bad debt versus and investment loss. A business bad debt can be offset against other ordinary income such as W-2 income, interest and dividend income. A business bad debt can result in creating a net operating loss on your individual return when you don’t have enough income to offset the business loss. A non-business bad debt is treated as a capital loss that will only offset capital gains. If you realize net capital loss, you can then use the loss to offset up to $3k in ordinary income. Aslongas you are considering lending money to your s corp, you must meet these requirements to qualify your debt for a loan instead of equity:your debt should be documented as a written obligation that needs to be paid back by a specific date or a certain amount must be paid on demand; The debt cannot be converted into stocks for the corporation or any other equity interest; The corporation must determine interest rates and payment deadlines based upon corporation profits, decision making, and other factors;you, as the lender, must be an eligible shareholder of the S corp..



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