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

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.