Hello,

I have a 20-year old S-Corp. For the first 10 years of its life, it conducted business but then it ceased operations when I went to work for another company and then took some time off. At the time it ceased operation, the company had a retained loss of about $7,500. I chose to keep the company alive, in anticipation that I would eventually come back to work for the company.

Well, after 10 years, I finally have done that, perhaps a little later than I thought. For those 10 years, the company has conducted no business but it has paid its annual minimal tax filings for which I have loaned the company money each year. The company ended up with about $12,500 recorded as a shareholder loan to the company (that's the $7,500 plus the approx $500 filing fees each year).

For these past 10 years, the company has given me a Schedule K-1 showing a $500 loss each year. Each year, I recorded that loss on my 1040 Schedule E section III.

This year, the company has made about $35,000 income. The company paid me $10,000 as a reasonable salary. The company also repaid me the $12,500 loan.

I have just prepared a tentative Schedule K-1 using TaxACT which is showing $25,000 as net income and a box 16-E $12,500 loan repayment.

When I now enter this onto my 1040 Schedule E section III, the $25,000 causes a large tax liability this year. There doesn't appear to be anywhere to enter the $12,500 loan repayment amount.

I had not expected to have to pay tax on the loan repayment amount since it was my own tax-paid money that I have been lending to the company. How should I be reflecting this (either on the K-1 and/or on my 1040 E or elsewhere) so that the $12,500 loan repayment isn't treated as income?

Many thanks.
Jay.