SCorp Losses

[marcsantoli]

I just recently setup an S-Corp for my computer consulting business. I have been reading lots baout generating losses in the corporation to passthrough to my normal (w2) income. Problem is. How do I generate these losses without having that much income?

For example. If I have 5k of S-Corp revenue, how can I show that my losses are say 1k on expenses of 6k (500 a month in rent, payed to me for my home office). basic example i know.

I just can't seem to wrap my head around having expenses that are paid by me personally, like paper, driving, etc that would far exceed my revenue when you count rent on my home office.

Does a promisary note count as an expense for the current tax year? or only when the amount is paid.


ahhhh...
--marc

[gar1976]

Before you get too carried away, remember for s Corps you can only deduct losses up to your basis in the corporation. For S Corps, basis is:

Capital contributions

Shareholder loans to the company

So really, you can only deduct as losses the amount you've put into the company one way or the other. Seems silly to create a S corp in your case just to do that, but maybe it's me.

[marcsantoli]

thanks for the info. the reason i asked is that i buy a lot of computer hardware/software to do development work and i will no doubt incur a loss over the course of the first year to year and a half. (ever seen the prices on Visual Studio? eghads!!!) I just didnt see how I could incur the loss. As long as I dont take a reimbursement from the corporation it would be paid in capital and the loss would move onto my 1040.

Thanks,
--marc

[gar1976]

Originally Posted by gar1976

Before you get too carried away, remember for s Corps you can only deduct losses up to your basis in the corporation. For S Corps, basis is:

Capital contributions

Shareholder loans to the company

So really, you can only deduct as losses the amount you've put into the company one way or the other. Seems silly to create a S corp in your case just to do that, but maybe it's me.

Oh, and also your basis includes net income, plus or minus some adjustments.

[rubicon]

If you really spent $6,000 on $5,000 of revenue then you've got a loss. That should be OK, however the IRS wants to see a business making a profit after a few years.

As a business owner it should be your goal to generate revenue, take advantage of deductions where you can, and strive for a profit. I recommend getting a CPA on your team. They're worth their weight in gold and can answer any question you throw at them.

[gar1976]

Originally Posted by marcsantoli

I just recently setup an S-Corp for my computer consulting business. I have been reading lots baout generating losses in the corporation to passthrough to my normal (w2) income. Problem is. How do I generate these losses without having that much income?

For example. If I have 5k of S-Corp revenue, how can I show that my losses are say 1k on expenses of 6k (500 a month in rent, payed to me for my home office). basic example i know.

I just can't seem to wrap my head around having expenses that are paid by me personally, like paper, driving, etc that would far exceed my revenue when you count rent on my home office.

Does a promisary note count as an expense for the current tax year? or only when the amount is paid.


ahhhh...
--marc

And shit, don't pay yourself rent. That's a waste of effort, since you need to turn around and claim that as rental income anywyas - you come out exactly the same.

And promisary notes are not expenses. They're a balance sheet item with no P&L effect, except for the interest paid on them (since you're a cash basis taxpayer for 1040 purposes, and a more than 2% shareholder in the S corp).

Go spend the couple hundred bucks and talk to a CPA.