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Conference nyoss1::market_investing

Title:Market Investing
Moderator:2155::michaud
Created:Thu Jan 23 1992
Last Modified:Thu Jun 05 1997
Last Successful Update:Fri Jun 06 1997
Number of topics:1060
Total number of notes:10477

409.0. "tax return help on bussiness loss" by VSSTEG::CHENG () Tue Mar 09 1993 14:41

    Need help on how to report bussiness loss for 1992 tax return.
    
    My brother and 3 other friends formed a small corporation last year to
    start a resturant bussiness. Bussiness was not as good as they would
    like. At the end of the year, he received the Schedule K-1 from the 
    resturant. On Line 1 ( ordinary income/loss from trade or bussiness 
    activities ) of the form there indicates a loss of, let say, $10K.  
    During the year, he had sold some stocks and had a capital gain of,
    let say, $5K.
    
    Can he use the amount of loss to reduce the amount of gain ( to 0 ) ?
    Which schedule/form he should use ? Schedule E ? or other ?
    
    Can he subtract the remaining loss from his ordinary income ?
    If yes, how much loss, if not the total remaining 5K, can he deduct 
    from the income ?
    
    Thanks.
T.RTitleUserPersonal
Name		DateLines
409.1it depends...SOLVIT::CHENWed Mar 10 1993 10:4512
    Did he form a "S Corporation", a corporation or a partnership? I think
    that maks the difference. If it is a partnership, he can deduct the
    loss from him income and us it to off set his capital gains. If it is 
    a "S Corporation", he can file it as a partnership for 1992 and deduct 
    the loss from his income. But, if it is a regular corporation, his 
    personal liability is shielded from the corporation. Unfortunately, so 
    is the loss. Then, he can not deduct the loss from his personal income.
    
    I am not an accountant. These are just from my memory. The best is to
    consult with an accountant.
    
    Mike
409.2VSSTEG::CHENGThu Mar 11 1993 09:159
    re: .1
    
    Since the SCHEDULE K-1 he received is FORM 1120S, I suspect this is
    a S Corporation. Does this means that he shoud use SCHEDULE E to report
    the loss ? What is " at-risk activity ", " passive and nonpassive "
    on SCHEDULE E refers to ?
    
    Thanks.
409.3Sorry, that's all I know.SOLVIT::CHENThu Mar 11 1993 10:3411
    re: -1
    
    I was just speaking from memory of reading some books about the
    advantages (and disadvantages) of partnership, S corporation and
    corporation. I am not really familiar with the different tax schedules. 
    Sorry, I can't help you further on this. Maybe your brother should
    check with his accountant or call the IRS hotline.
    
    Regards,
    
    Mike
409.4K-1 with loss usually means a paperwork disaster...SUFRNG::WSA118::SOVEREIGN_S...once a knight is enough(?)Fri Mar 12 1993 16:1516
K-1's are reported on Schedule E.

If the K-1 shows a loss, you have to determine how much of the loss he was
"at risk" for, ie did the money actually come out of his pocket, or out of
his assets?

In other words, where did the money come from that was "lost"?

If the partners (S-corp shareholders) took money out of their own accounts,
or if they are able to be held liable for the businesses loans, then he is
probably "at-risk".

I would urge you to get professional help..."At-risk loss limitations" and
"Passive activity loss limitations" are not for the faint hearted.

SteveSov