S Corp Diagnostic

[callene]

hi.  Diagnostic comes up re S Corp with nondeductible expenses. kper reg 1.1367-1(g), Lacerte says can make election to make nondedeductible exp in excess of basis carry forward....Screen 20.2, code 242.  Is this an allowable option?

[Jack4 · Accepted solution]

Hi, Callene. Yes, this is an allowable option. The diagnostic is in place to inform you of this option if you choose to do so. You can make this change by making an entry in the field in scr. 20.2, S-Corporation Information labeled "1=Deduct losses before nondeductible expenses and depletion." 

[callene]

thx, Jack4, is there a "hidden" or unknown negative consequence for electing?

[Jack4]

Hi, Callene. There is no consequence that I'm aware of in the long term. We typically recommend toggling between the two types to see if one yields a greater loss than the other, or if one provides a better tax benefit. One method may carry over a loss that is greater or smaller loss than the other, so it will affect the K-1 in that way. But it will be different for every K-1. It's something the IRS allows taxpayers to do, so it's good to see which one (if any) provides a better result. 

Hope that helps!