“ If I include the depreciation from our assets (laptops, printers, etc. to = $180), I cannot get my schedule m-2 to balance out zero...our account balance at end of year...since we closed everything. Do I have to include the depreciation since we, technically, did not use the equipment at all last year?”------>Yes; even if your s-corp is currently having a loss, you are still allowed to deduct depreciation. Doing so will generate a larger paper loss on the K-1 that will flow to your personal tax return on 1040; you can only deduct losses of the S-Corp against ordinary income to the extent you have basis in the S-Corp. Anything above that is considered a capital loss. It's probably long-term capital loss so it's subject to the $3K per year limit. An S corp, the capital gains pass through separately. To the extent that any S corp losses are deductible by an individual shareholder, you would be available to offset the capital gain income. Non corporate taxpayers can carry forward capital losses in excess of $3K to future years indefinitely, but cannot carry back the loss to prior years.
If you do that and get a negative number for AGI, then you could have a "Net Operating Loss".. First off you want to make sure you really have an NOL. Because a Sub-chapter S corporation passes net income, net losses, capital gains and capital losses through to the shareholders each year, no previous year taxable net income exists to offset at the corporation level. However, a shareholder might be able to use a NOL carryback on his personal income tax return.If you've closed down the S-Corp, then that could easily be the case. If you do you can either carry the loss back to prior years to offset income in those years and potentially be eligible for a refund. Or you can carry it forward if you think you'll be having income in 2010 and beyond to reduce your tax in future years. However, you are NOT subject to Sec 1245 recap rule as long as you have losses. Deducting depreciation is really not an option. What is an option is the method you choose for computing it. Not only are you allowed to calculate the loss to a S-Corp you are required to do so (use it or lose it). A loss will always be subject to basis. In other words, an S-corp shareholder cannot deduct losses that exceed basis in the stock/loan.
“Also, are we supposed to do anything else regarding these assets? Our previous accountant gave us a "walk through" (if you will) about what we should be filling out. He says we do not have to file a 4797 or anything else. Is this accurate?...since it was all our money anyway...and it was only losses every year (for four years).”-------->Yes.As mentioned previously, UNLESS the S corp takes a profit, it doesn’t need to fiel Form 4797, no Sec 1245 rule. Corporation is a business structure that allows its investors to claim earnings and losses on their personal income tax returns. 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 outside basis as a shareholder to claim the losses. Knowing how to determine your basis and how the current year's increases and decreases affect it will tell you whether you can claim all or part of the losses or whether they are suspended. If your basis is less than your share of the net loss, you can only claim the amount of loss that brings your adjusted basis to zero.
Last edited by Wnhough : 01-10-2013 at 07:24 AM.