Explains how an S corporation reports a Schedule K-1 ordinary business loss (box 1) and how the individual shareholder applies the basis, at-risk and passive activity limits before deducting it, for tax preparers and S corporation shareholders in the United States.
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| What | Value | Note |
|---|---|---|
| Source | all figures in this row group | https://www.irs.gov/instructions/i1120s |
| Form 1120-S due date | 15th day of the 3rd month after the end of the tax year | "Generally, an S corporation must file Form 1120-S by the 15 day of the 3rd month after the end of its tax year." |
| Calendar-year due date for the return this Guide covers | March 16, 2026 | "For calendar year corporations, the due date is March 16, 2026 (March 15th falls on Sunday)." |
| Payment due date | same as the filing due date, not including extensions | "Generally, the corporation must pay any tax due in full no later than the due date for filing its tax return (not including extensions)." |
| Penalty per incorrect or late Schedule K-1 | $340, rising to $680 if intentionally disregarded | "a $340 penalty may be imposed with respect to each Schedule K-1 (and Schedule K-3, if applicable) for which a failure occurs. If the requirement to report correct information is intentionally disregarded, each $340 penalty is increased to $680 or, if greater, 10% of the aggregate amount of items required to be reported." |
| Records retention period | 3 years from the date each shareholder's return is due or filed, whichever is later | "Usually, records that support an item of income, deduction, or credit on the return must be kept for 3 years from the date each shareholder's return is due or filed, whichever is later." |
This Guide covers how an S corporation completes Form 1120-S and Schedule K-1 to pass through a box 1 ordinary business loss, and how the individual shareholder determines how much of that loss is actually deductible once the basis, at-risk and passive activity rules are applied. It is for S corporations that already have a valid election in effect and for the shareholders who receive a Schedule K-1 (Form 1120-S) showing a loss in box 1. Figures are for tax year 2025, which is the most recent tax year for which the IRS had published the Form 1120-S instructions, the Schedule K-1 (Form 1120-S) shareholder instructions and the Form 7203 instructions at the time this Guide was drafted; the IRS had not yet issued 2026 versions of these instructions.
Don't file Form 1120-S unless the corporation has filed or is attaching Form 2553, Election by a Small Business Corporation. This Guide is for such an electing S corporation and for its individual shareholders who receive a Schedule K-1 (Form 1120-S) showing an amount in box 1, described on the form as "Ordinary business income (loss)." It does not cover partnerships filing Form 1065, C corporations filing Form 1120, or the rental real estate boxes (box 2 and box 3) of the Schedule K-1, which carry separate rules not addressed here.
| What | Value | Note |
|---|---|---|
| Source | all figures in this row group | https://www.irs.gov/instructions/i1120s |
| Form 1120-S due date | 15th day of the 3rd month after the end of the tax year | "Generally, an S corporation must file Form 1120-S by the 15 day of the 3rd month after the end of its tax year." |
| Calendar-year due date for the return this Guide covers | March 16, 2026 | "For calendar year corporations, the due date is March 16, 2026 (March 15th falls on Sunday)." |
| Payment due date | same as the filing due date, not including extensions | "Generally, the corporation must pay any tax due in full no later than the due date for filing its tax return (not including extensions)." |
| Penalty per incorrect or late Schedule K-1 | $340, rising to $680 if intentionally disregarded | "a $340 penalty may be imposed with respect to each Schedule K-1 (and Schedule K-3, if applicable) for which a failure occurs. If the requirement to report correct information is intentionally disregarded, each $340 penalty is increased to $680 or, if greater, 10% of the aggregate amount of items required to be reported." |
| Records retention period | 3 years from the date each shareholder's return is due or filed, whichever is later | "Usually, records that support an item of income, deduction, or credit on the return must be kept for 3 years from the date each shareholder's return is due or filed, whichever is later." |
| What | Value | Note |
|---|---|---|
| Source | row below | https://www.irs.gov/instructions/i7203 |
| Order in which a shareholder must apply loss limitations | basis limitations (Form 7203), then at-risk limitations (Form 6198), then passive activity loss limitations (Form 8582), then excess business loss limitations (Form 461) | "These limitations and the order in which you must apply them are as follows: the basis limitations (Form 7203), the at-risk limitations (Form 6198), the passive activity loss limitations (Form 8582), and the excess business loss limitations (Form 461)." |
| Who must file Form 7203 | shareholders claiming a loss deduction, receiving a non-dividend distribution, disposing of stock, or receiving a loan repayment | "Form 7203 is filed by S corporation shareholders who: Are claiming a deduction for their share of an aggregate loss from an S corporation (including an aggregate loss not allowed last year because of basis limitations), Received a non-dividend distribution from an S corporation, Disposed of stock in an S corporation (whether or not gain is recognized), or Received a loan repayment from an S corporation." |
| What | Value | Note |
|---|---|---|
| Source | row below | https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-stock-and-debt-basis |
| Loss deduction ceiling | limited to the shareholder's stock basis plus debt basis | "If a shareholder is allocated an item of S corporation loss or deduction, the shareholder must first have adequate stock and/or debt basis to claim that loss and/or deduc" tion. |
| Treatment of loss that exceeds basis | suspended and carried to the next year for that shareholder | "Under IRC §1366(d)(2), any loss suspended because of lack of stock and debt basis shall be treated as incurred by the corporation in the succeeding taxable year with respect to that shareholder." |
| What | Value | Note |
|---|---|---|
| Source | row below | https://www.irs.gov/instructions/i1120ssk |
| Where a materially-participating shareholder reports box 1 income (loss) | Schedule E (Form 1040), line 28, column (i) or (k) | "Report box 1 income (loss) from corporate trade or business activities in which you materially participated in column (i) or (k) of Schedule E (Form 1040), line 28." |
| When Form 6198 is required | when the shareholder has a loss and amounts in the activity for which they aren't at risk | "Generally, if you have (a) a loss or other deduction from any activity carried on as a trade or business or for the production of income by the corporation, and (b) amounts in the activity for which you aren't at risk, you will have to complete Form 6198, At-Risk Limitations, to figure y" our allowable loss. |
Other United States computations in the OpenAccountants Tax Library.
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