If you're an S corporation shareholder, a partner in a partnership, or a member of a limited liability company (LLC), one tax rule applies to you: You can only deduct operating losses that are passed through to you for the year to your extent of basis.

As the end of the year draws near, it's vital to understand how you figure your basis for tax purposes and what steps you can take now to ensure that any anticipated losses for the year will be deductible.

S corporations
An S corporation shareholder's basis is comprised of basis from stock and debts owed by the corporation to the shareholder. The starting point is the amount of cash and value of property contributed to the corporation. For example, if a shareholder starts the business by contributing $10,000 cash in exchange for stock in the corporation, his/her initial basis is in the stock. There are numerous adjustments that impact basis, reflecting such actions as annual share of corporate net income (including tax-exempt income) or loss and charitable contributions by the corporation. But debt that the corporation owes to a third party (e.g., a bank loan to the corporation) has no impact on the shareholder's debt.

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