Write off loan and debt of a corporation


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I have started a business a few years and it didn't work out. I have invested in the corporation as well as sign a personal guarantee on a corporate credit card. As of this year, we're closing down the business. How do I write off the losses as well as the interests on the credit card I'm still paying on?

Thanks.
 
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How to treat bad investment / interest

The capital you contributed would be your basis in the investment and the proceeds would be anything left after you dissolve the corp (i.e. any cash in a business account). Presumably that would be a loss and you would report that on your Schedule D.

As far as the interest goes, that would be investment interest expense deductible on your schedule A. You should have been taking that in years past - since inception of when you were incurring the interest. Deduction is limited to passive income but it can be carried over. Hope this helps.
 
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This information may be a little late, but you didn't say what type of entity the company was. Looking at your user id, I'm assuming that your are an LLC. Even as such, the LLC is created at the state level and it is not recognized on the federal level. Thus, for federal tax purposes, unless you made a federal election (Form 8832), then by default, you are being taxed as a disregarded entity (Schedule C) if you are the sole owner of the company, a partnership (Form 1065) if you an another person formed the company, or a corporation (Form 1120) if there are more than two owners. And, if your company IS a true corporation, then you would also need to actively file an election to be taxed as an S-Corp.

But since you used the term "corporation," then we'll go with that assumption. When you close down the business, you may stop operations, but that is not the same thing as disolving the company. To disolve the company, you will need to file the proper forms with the state in which you incorporated (or technically, formed the LLC). Then you will need to file the final federal return.

Again, going with the C-Corp assumption, you will not receive any losses via a Schedule K-1. The losses will stay with the corporation. If you have not disolved the corporation, then you should file a corporate return every year showing the losses, and the losses will create negative equity. If at all possible, pay off the credit card before you disolve the company (notice I said disolve, not close down). All of the expenses incurred during the company's dormancy will flow to the equity section of the company's balance sheet. Once the company has paid its debts, then you can disolve the company. As an equity holder, you can claim the losses as a Captol Loss on Schedule D.

I hope this helps. Let me know if I can be of further assistance at tuncap.com.

Russell
 

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