Question

Don Juan, a single taxpayer, is the sole owner of DJ’s Inc., an S Corporation. This year, DJ’s Inc. incurred a massive $600,000 business loss, all of which is allocable to Don Juan as the sole shareholder. Assume that $600,000 loss is not limited by the basis, at-risk, or passive loss rules, and that Don Juan has no other business income or business losses. How much of the $600,000 loss will Don Juan be able to deduct this year? What happens to any loss not deducted this year?

Answer 1

Incase of net loss, (after deducting all expenses from income), the loss can be carried back to 2 years or carry forward for next 20 years. In case of carry back, the sole proprietor can claim refund (from previous year's income).

If the $600,000 loss is not limited by the basis, or passive loss rules, in such case, Don Juan has no other business income, then the entire amount can be carried forward to future years. (as there is no other income to set off the current year loss)

As explained above, if any loss not deducted this year can be carry forwarded to next 20 years (to off set against future incomes)