At Risk Limitations

[BCinSC]

S-Corp shareholder (with basis limitation for the current year loss) has unreimbursed expenses to be deducted on Sch E. How are these expenses handled when calculating the loss limitation? Are they deductible regardless of the loss that is limited? Thanks for clarifying for me.

[David1980]

If they are an employee of the S-corporation they can take the unreimbursed expenses as an employee unreimbursed expense on 2106/Schedule A subject to 2%. A much better approach is to setup an accountable reimbursement plan on the S-corporation, they could then get reimbursed by the S-corporation and the S-corporation could deduct the expenses. S-corporation shareholders can't deduct unreimbursed expenses on the Schedule E though.

If deducted on 2106 it wouldn't affect their loss limitations either way. If reimbursed by the s-corporation, it would reduce the amount of income reported on the K-1 which results in a smaller income (or larger loss) showing on the 1120-S.