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