Dynamic Patterns of Loss Use and Effective Tax Rates: Owners of S-Corporations

58 Pages Posted: 2 Jun 2020

See all articles by Lucas Goodman

Lucas Goodman

U.S. Department of the Treasury

Elena Patel

University of Utah - Department of Finance

Molly Saunders-Scott

Government of the United States of America - Congressional Budget Office (CBO)

Date Written: May 4, 2020

Abstract

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

Suggested Citation

Goodman, Lucas and Patel, Elena and Saunders-Scott, Molly, Dynamic Patterns of Loss Use and Effective Tax Rates: Owners of S-Corporations (May 4, 2020). Available at SSRN: https://ssrn.com/abstract=3592884 or http://dx.doi.org/10.2139/ssrn.3592884

Lucas Goodman

U.S. Department of the Treasury ( email )

1500 Pennsylvania Avenue
Washington, DC 20220
United States

Elena Patel (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

Molly Saunders-Scott

Government of the United States of America - Congressional Budget Office (CBO) ( email )

Ford House Office Building
2nd & D Streets, SW
Washington, DC 20515-6925
United States

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