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

If your S corporation has suffered losses due to economic hardtimes, you may be able to save a lot in taxes from these losses ifyou have Section 1244 stock. As you know, one of the advantages ofan S corporation is that the firm's annual income or losses arepassed through to shareholders. Gains are reflected on theindividual shareholder's tax return, and losses aredeductible.

One of the big advantages of having Section 1244 stock is thatstockholders in an S corporation can claim an ordinary loss ratherthan a capital loss if the company runs into trouble, says PaulGada, a tax analyst with CCH Business Owner's Toolkit, adivision of Riverwoods, Illinois-based tax and business lawinformation provider CCH Inc.

What's the advantage of claiming ordinary losses overcapital losses? Individual stockholders are able to take morelosses and thus a bigger deduction on their returns. The maximumexcess capital loss that an individual taxpayer is allowed todeduct is $3,000 in any one year. Unused excess capital losses arecarried forward and may be used to offset future capital gains.