ExpertHard1 markMultiple Choice
CPA · Question 60 · Area V: Entity Taxation
A taxpayer is a 10% shareholder in an S Corporation. The taxpayer's stock basis at the beginning of the year is $10,000. The S Corporation reports a $200,000 ordinary loss for the year. The taxpayer's share is $20,000. The taxpayer also has a $5,000 loan outstanding to the corporation. What amount of loss can the taxpayer deduct in the current year?
A taxpayer is a 10% shareholder in an S Corporation. The taxpayer's stock basis at the beginning of the year is $10,000. The S Corporation reports a $200,000 ordinary loss for the year. The taxpayer's share is $20,000. The taxpayer also has a $5,000 loan outstanding to the corporation. What amount of loss can the taxpayer deduct in the current year?
Answer options:
A.
$10,000
B.
$20,000
C.
$15,000
D.
$0
How to approach this question
S Corp Loss Limit = Stock Basis + Debt Basis (Direct loans only). $10k + $5k = $15k limit.
Full Answer
C.$15,000✓ Correct
C
An S Corporation shareholder can deduct losses to the extent of the sum of their stock basis and debt basis (loans made directly to the corporation). $10,000 + $5,000 = $15,000 deductible. The remaining $5,000 is suspended.
Common mistakes
Forgetting to include debt basis.
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