For example, a shareholder may be able to reduce the overall tax burden on S-Corp earnings by shifting income to family members. This can be accomplished by transferring stock to minor children over the age of 13. Typically, such minor children will be in a lower tax bracket and will thus pay a lesser amount of tax than would the parent. Yet another advantages of S-Corp. treatment relates to the utilization of corporate net operating losses. Subject to certain relatively complex requirements, a shareholder may be able to offset S-Corp. losses against personal taxable income from other sources.
Basis is obtained through by the corporation.
The guarantee by shareholders of corporate debt does not create basis for loss utilization by shareholders. Disadvantages to Electing S-Corp. Status Despite the very substantial benefits associated with S-Corp status, the treatment is not without its share of potential disadvantages. Normally an S-Corp. must use a calendar year in filing its tax returns. This may present a dilemma for government contractors who have historically chosen to use a fiscal year end, such as September 30.