Reporting Your Share of S Corporation Net Losses

• A shareholder's percentage of the S corporation's net ordinary loss for the year is reported to the shareholder on line 1 of Schedule K-1. This loss is reported on the shareholder's personal tax return on line 17. If this loss results in a loss on line 43 (Taxable income) you may have a net operating loss.
  
  

Calculating a Net Operating Loss on an Individual Tax Return

• If the taxable income on line 43 is a negative number, the next step is to add back all non-business net capital gains and non-business net income. If the result is still a negative number, this is the net operating loss available. For example, if the loss on line 43 is $100,000, the non-business net capital gain is $35,000 and the non-business net income is $25,000, the net operating loss available to carry back or carry forward is $40,000 (-100,000 +35,000 +25,000= -40,000).
  
  

Making the Irrevocable Election

• To take advantage of a net operating loss carryback, you must attach a statement to your personal tax return stating you are electing to apply section 172(b)(1)(H) to carryback the net operating loss. This is an irrevocable election; once it is made and the tax return is filed, you cannot change your mind after the current year's tax filing deadline. If you don't file this statement with the tax return, you are automatically electing to carry the loss forward into future years. This is also an irrevocable election.
  
  

Carryback Period and Method

• In most tax years, a NOL can be carried back 2 years to offset taxable income in those years. Apply the NOL to the older of the two years first. If any NOL amount remains after offsetting the taxable net income in the older year, carry the remaining NOL into the more recent year. If any NOL still remains, it will be carried forward into future years.Applying NOL carrybacks requires filing amended tax returns for each year to which the NOL carryback is applied.
  
  

Special NOL Carryback Provisions

• For tax years 2008 and 2009, the American Recovery and Reinvestment Act provided for a special carryback period for small businesses, including S corporations. As an S corporation shareholder, you were allowed carry back an available net operating loss from either 2008 or 2009 (but not both) for a period of up to 5 years.