I have a Florida based medical practice. This year I took a big salary and along with my pension plan, it seems that my S corporation has a 100,000 dollar loss or so.

Can I deduct all of these losses on my personal tax return without any limitations?

Of course there is no florida tax return to file and so I have no need to worry about Florida tax issues. Thanks for your reply..

Doctor,

The S Corporation rules are fairly complicated with regards to your situation, however, in very simple terms, the losses that you have apparently incurred in 2006 through a big salary and pension maybe deductible through your K-1 provided you have what is termed "sufficient basis" in the S Corporation.

I am sure you would be familiar with the term Basis, since you are operating an S corporation. If not, Basis is the sum of origninal investment, plus net loans made by you to the corporations, plus undistributed profits or retained earnings.

Your basis could also be Zero, however, the IRS does not allow negative basis. The Zero basis arise when you have received loans, made losses in excess of your investment in the S corporation and have no undistributed profits (retained earnings).

Of course, there are some other adjustments that are made to this number, but for our simple discussion, your current year profit is reduced by your salary and pension plan and has resulted in a loss of <100,000>. What this means, is if have to look at prior years ending basis, if this amount is greater than Zero, it would appear that this the amount of losses that can be deductible.

I would strongly recommend that you use the services of a CPA to advice you of your unique situation. Had you sought the advice of a CPA, a strategy could have been formulated to make these losses deductible on your personal tax return simply by increasing your basis in the S corporation by making a loan to the S corporation!

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