Can you deduct defunct S corporation expenses?

In many past issues of the Tax Reduction Letter we’ve talked about how to get the greatest tax benefits from your S corporation.

But what happens if you decide to close down your business? What then?

Can your S corporation deduct business expenses that you paid after you officially dissolved the corporation?

We’ll answer this and other important questions when you read my new article titled Tax Tips: Q&A: Deduction for Defunct S Corporation Expenses?

Three ways our fact-filled article can help you:

1. We’ll explain the law on those after-the-fact business deductions. The law is very clear on this issue. For Section 162 ordinary and necessary business expenses, making a payment on behalf of your S corporation is different from one made by the corporation itself. Since your S corporation is defunct and didn’t pay expenses, it gets no ordinary deductions for those expenses. You’ll get the whole story when you read the full article.
2. We’ll tell you about the important Arrowsmith Supreme Court decision. The court found that you may not personally deduct the expenses because you did not incur them in your trade or business. However, you can deduct the expenses as capital losses. You’ll get all the details when you read the full article.
3. We’ll explain the right way to have handled the situation. If you had left the S corporation open with some cash in the till, then the corporation could have deducted the expenses as ordinary expenses. That’s true even if the S corporation had paid them after the S corporation ended its business activities. The loss would then have passed through the S corporation to you as its owner. All will be explained when you read the full article.