Dynamic Patterns of Loss Use and Effective Tax Rates: Owners of S-Corporations
58 Pages Posted: 2 Jun 2020
Date Written: May 4, 2020
In this paper, we study tax loss asymmetry for S-corporation owners. We find that these owners use approximately 70 percent of losses contemporaneously---which exceeds the loss use over ten years for C corporations. We simulate owner-level effective tax rates and find that, in spite of the high contemporaneous use, there is a 7 percentage point wedge between gain and loss owners. Finally, we simulate the effects of certain provisions of the Tax Cuts and Jobs Act that limit loss usage; we estimate that these provisions have modest effects on loss usage and little effect on effective tax rates.
Keywords: Tax loss asymmetry, S corporations, effective tax rates, net operating loss
JEL Classification: H24, H25, H32
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