Deducting losses

S corporations are designed by Congress to make profits and distribute them to shareholders – not to lose money.  When it comes to deducting losses, shareholders must jump through 4 different hoops: the passive loss rules, the “at-risk” rules, basis limitations, and the new “excess loss” limits.  Unlike a partnership, corporate debt does not let shareholders deduct losses – even if the shareholders guarantee the debt.  “Back to back” loans where the funds are ultimately coming from another controlled entity are also subject to scrutiny.  Before you decide to claim losses in the business, understand whether those losses will really reduce your personal taxes, and how you can structure the debt to get the benefits.