Final answer:
The loss limitations for S corporations consist of At-Risk, Passive Activity Loss, Basis, and Excess Business Loss Limitations, which control the deductible losses on shareholders' tax returns.
Step-by-step explanation:
The loss limitations that apply to S corporations include a. At-Risk Limitations, b. Passive Activity Loss Limitations, c. Basis Limitations, and d. Excess Business Loss Limitations. These limitations are in place to regulate how much loss shareholders can report on their individual tax returns. The at-risk limitations only allow shareholders to deduct losses up to the amount they have at risk in the S corporation, which includes money and adjusted basis of other property contributed to the business.
Passive activity loss limitations restrict the deduction of losses from passive activities, which are those in which the shareholder does not materially participate, to only offset income generated from passive activities. Basis limitations restrict a shareholder's ability to deduct losses beyond their basis in the S corporation, which is generally the sum of their investment in the company plus any undistributed profits. Lastly, excess business loss limitations limit the loss that can be deducted to $250,000 for single filers and $500,000 for married filing jointly, with losses beyond this amount carrying over to the following year.