There are a number of tests to pass in order to deduct losses associated with an S corporation, partnership, LLC or other business entity. Two frequently encountered issues for business are basis and material participation. This article describes the facts of the case and explains how a business can deduct losses.

Taxable or tax-free is a common theme in litigation between taxpayers and the IRS when legal awards and settlements are involved. Personal injury or illness can be the deciding factor. Here is a case that highlights the distinction, as well as other issues that arise when courts award payments.