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Lane
Lane, JD, CFP, MBA, CRPS
Category: Capital Gains and Losses
Satisfied Customers: 10149
Experience:  Have been providing Financial and Tax advice for 30 years.Concentration in Corporations, Estate, Income Tax and Business Planning
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I had a business who is being closed. It was loosing a lot

Customer Question

Hi
I had a business who is being closed. It was loosing a lot of money.
When I closed my accountant stated I can withdraw the leftover money in my account without paying tax. My wife is concerned maybe this advise was wrong. Am I supposed to pay tax on my personal return as income for money transferred or the business was supposed to pay tax? the business was C corporation and this money was owner capital. I was putting money on business because I was loosing . It was a sole proprietorship. This money was not dividend or shares, the business was not having shareholders or paying dividends.
Submitted: 5 months ago.
Category: Capital Gains and Losses
Expert:  Lane replied 5 months ago.

Hi,

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No, your account is likely correct.

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If you've been losing money and this was just originally contributed capital (some of which has already gone by the wayside to cover the losses, then this could easily just be taking what's left (still under your basis).

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Now if the money represented PROFITS, this WOULD need to be treated as a dividend (and taxed to you on a 1099-Div)

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THis is one of the biggest decisioins a C-Corp makes after closing it's books for the year and paying any tax owed by the corporatoin at corporate brackets and rates; (whether to declare a dividend with that profit - and have the shareholder/owner pay tax on it again - the double taxation you heafr about with C-Corps ... OR ... to book the profits to retained earnings)

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BUT, again, if the C-Corp has already payed any taxes it's owed and you are down to moeny that you ORIGINALLY contributed and didn't have gains on sale or liquidation of the business, you are just pulling back your original investment.

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Your accountant likely understnands the distinction between gains (and operational profits) and taking back what little basis you may have had in the company after losses

Expert:  Lane replied 5 months ago.

As long as you've paid all taxes, debts of the company, and there is no gains on dissolution (again something your account can answer), this is just a return of your initial investment.

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Please let me know if you have any questions at all.

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If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the faces or stars on your screen, and then clicking “submit")

JustAnswer will not credit me for the work unless you do.

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Thank you!

Lane

I have a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, on three continents, since 1986

Expert:  Lane replied 5 months ago.

CAn I ask you to clarify something for me?

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You say that, " the business was C corporation and this money was owner capital."

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But later you say, "It was a sole proprietorship."

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Did you mean that the business started out as a sole proprietorship, you then incorporated?

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Or are you saying (which was the assumption in my answer) that you were a single owner C-Corp?

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Let me know and we can go from there

Customer: replied 5 months ago.
the business was C corp single owner
The accountant closed the business improperly I believe , could not put together balance sheet and put 0 for assets and 0 for liabilities , I asked him he says because business liquidated and closed. Is this correct? just put 0 and 0 and done with balance sheet? I did not have any debt to pay and too many assets.
Expert:  Lane replied 5 months ago.

Well, if there was cash in the account, that doesn't reconcile with there being $0 assets, at first blush.

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That account is an asset.

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However, the balance sheet being zero AFTER distributing your capital back to you could very well BE correct

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The accountant could easily have known enough about your basis, to know that this was not taxable and what would end up being reported, after the return of capital, would be zero and zero.

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Honestly just not enough here to go on.

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BUT, after years of losses, it's very possible that returning some of the original capital invested would not be taxable ... Said differently .. it is NOT a given that those dollars are taxable.

Expert:  Lane replied 5 months ago.

I hope this has helped you to understand the possibilities.

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Please let me know if you have any questions at all.

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If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the faces or stars on your screen, and then clicking “submit")

JustAnswer will not credit me for the work unless you do.

...

Thank you!

Lane

I have a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, on three continents, since 1986.

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