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S Corp losses

Forum|Forum|3 years ago
December 14, 2022
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My S Corp will lose money for the fourth straight year. I did make a profit in 2018. So this will be four out of the last 5 years I have lost. My Corp is just about bust due to pandemic and economic conditions. The corp has no debt. I run it on a cash basis. Can I still claim my losses on my 1040 ? Will the IRS say it’s a hobby now ? I most likely going to close the business in 2023.

TurboTax Business Windows

Best answer by Anonymous_

@jprince1 wrote:

Can I still claim my losses on my 1040 ?

You can use losses that are not in excess of your basis in the corporation.

@jprince1 wrote:

Will the IRS say it’s a hobby now ?

The factors the IRS uses to determine whether you are operating with an actual profit motive are set forth in Treas. Reg. §1.183-2(b):

1. the manner in which the taxpayer carried on the activity,
2. the expertise of the taxpayer or his or her advisers,
3. the time and effort expended by the taxpayer in carrying on the activity,
4. the expectation that the assets used in the activity may appreciate in value,
5. the success of the taxpayer in carrying on other similar or dissimilar activities,
6. the taxpayer’s history of income or loss with respect to the activity,
7. the amount of occasional profits, if any, which are earned,
8. the financial status of the taxpayer, and
9. elements of personal pleasure or recreation

See https://www.law.cornell.edu/cfr/text/26/1.183-2

A

Anonymous_Answer

Employee

@jprince1 wrote:

Can I still claim my losses on my 1040 ?

You can use losses that are not in excess of your basis in the corporation.

@jprince1 wrote:

Will the IRS say it’s a hobby now ?

The factors the IRS uses to determine whether you are operating with an actual profit motive are set forth in Treas. Reg. §1.183-2(b):

1. the manner in which the taxpayer carried on the activity,
2. the expertise of the taxpayer or his or her advisers,
3. the time and effort expended by the taxpayer in carrying on the activity,
4. the expectation that the assets used in the activity may appreciate in value,
5. the success of the taxpayer in carrying on other similar or dissimilar activities,
6. the taxpayer’s history of income or loss with respect to the activity,
7. the amount of occasional profits, if any, which are earned,
8. the financial status of the taxpayer, and
9. elements of personal pleasure or recreation

See https://www.law.cornell.edu/cfr/text/26/1.183-2

J

jprince1Author

Srry little confused. Been in business for about 15 years. Is basis the original stock buy I did to bootstrap the company

A

Anonymous_

Employee

You start with your initial investment in the corporation but then you need to adjust that each year according to the parameters set forth in the IRS topic at the link below.

See https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-stock-and-debt-basis