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Your Loss Is Your Gain

Taking a hit during hard times isn't necessarily a lose-lose situation if you're an S corporation.

This story appears in the May 2003 issue of Entrepreneur. Subscribe »

If your S corporation has suffered losses due to economic hard times, you may be able to save a lot in taxes from these losses if you have Section 1244 stock. As you know, one of the advantages of an S corporation is that the firm's annual income or losses are passed through to shareholders. Gains are reflected on the individual shareholder's tax return, and losses are deductible.

One of the big advantages of having Section 1244 stock is that stockholders in an S corporation can claim an ordinary loss rather than a capital loss if the company runs into trouble, says Paul Gada, a tax analyst with CCH Business Owner's Toolkit, a division of Riverwoods, Illinois-based tax and business law information provider CCH Inc.

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