Your S corporation can lose money without giving you a current tax deduction.

Your S corporation can lose money without giving you a current tax deduction.

If the company passes through a $250,000 loss and you have $50,000 of stock basis and no debt basis, $200,000 of the loss is suspended. A $200,000 capital contribution or bona fide loan directly from you to the company can supply the missing basis. Guaranteeing the company's bank loan does not.

But how you put the money in also affects how you get it back. If you use the loan basis to deduct losses, a later repayment of principal can produce taxable gain. The company is returning your money, and you may owe tax on it.

We need to plan both the deduction and the repayment. Basis is the first limit. The other loss limits still have to be met.

Today's Daily Tax Planning Strategy compares the funding choices and what happens when the money comes back.

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