Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 12-29-2014, 07:07 PM
Junior Member
 
Join Date: Dec 2014
Posts: 1
Do I have to draw a salary from S corp to claim losses?

My wife and I started a new business this summer. we set up as a S corp. The business lost money in year one (planned). I am now starting to do our taxes and I'm not clear on requirements of shareholders / employees in order to claim a loss on our personal taxes. My wife draws a reasonable salary from the business, I do not, but I do a good deal of work for the business. Can I claim a loss based on my initial investment since I do not draw a salary, or can only my wife claim a loss?. Does it matter since we are married and file joint return? How should I set up our initial basis? Majority from my wife in order to maximize our ability to claim losses if I can not claim based on having no salary? any advice would be helpful as i continue to investigate. Bill



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 12-30-2014, 03:45 AM
Moderator
 
Join Date: Oct 2010
Posts: 5,139
My wife draws a reasonable salary from the business, I do not, but I do a good deal of work for the business. Can I claim a loss based on my initial investment since I do not draw a salary, or can only my wife claim a loss?.============>>>>>>> Before you enter losses reported on a K-1 schedule from an S corp into your personal tax return, you must be sure you have enough basis as a shareholder to claim the losses.as you actively participate in the operation of your S corp and you're not merely a passive investor, as your S corp suffers a loss in any tax year you can deduct your share of the loss against your other sources of income, such as dividends, interest, your spouse's wages, etc The amount of the loss that you may deduct depends on your tax basis. You tax basis is equal to your stock basis plus your debt IRS has authority to reclassify draws/distributions or other payments to a shareholder if the shareholder has not taken a reasonable salary for the work performed by the shareholder. If you have taken nothing out of the S-corp, you do not have to take a salary. The S corp may deduct the compensation expense and must pay the employer share of employment taxes:as the biz lost money, it doesn’t need to pay any salary to her.

Does it matter since we are married and file joint return? =============>>>>>>>> IRS considers married taxpayers as one. It is advisable to report it separately on Sch E - listing it as - one owned by taxpayer and one by spouse.
Tax effect would normally be the same.
How should I set up our initial basis?=========>>>>>>>> Since you are operating an S corp, your basis is the sum of origninal investment, plus net loans made by you to the corp, plus undistributed profits or retained earnings. An income item will increase stock basis while a loss, deduction, or distribution will decrease stock basis.

Majority from my wife in order to maximize our ability to claim losses if I can not claim based on having no salary?===============>>>>>>as mentioned sbove.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Cash Draw / Member Pay Deductibility LLC12 Limited Liability Company 7 03-17-2013 05:52 PM
S-Corp Reasonable Salary? taxpadewon S-Corporation 0 03-08-2011 02:08 AM
Do I still pay salary when closing S-Corp in NJ c1991sc S-Corporation 1 12-16-2010 10:13 PM
S-Corp Reasonable Salary vs. Awarding Shares JDurrin S-Corporation 0 08-22-2009 01:48 AM
Can an S Corporation claim a loss despite the Officer/Owner's taking a high salary? Dwhite S-Corporation 1 02-03-2008 06:50 PM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning