How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask RD Your Own Question

RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
510454
Type Your Tax Question Here...
RD is online now
A new question is answered every 9 seconds

I need guidance on the best way to claim a business loss. Background

Resolved Question:

I need guidance on the best way to claim a business loss. Background facts
1. I owe taxes for 2005 that I would like to offset by business loss.
2. In 12/2006 my wife bought a business for 300K (trade name and good will and expected business performance based on previous years books), plus the real estate for 650K.
3. Ran the business for the full year, did not perform as expected, shut down business 12/07, lost the real estate 12/07. We were scammed but pursuing that legally - I need the IRS off my back for now.
4. For 2006 I have a AGI not related to the business of about 240K and want to find a way to off-set that income plus 2005's owed taxes by business loss.
5. Business for 2007 - cash in of about 700K, payments of about 825K...
6. Other facts - paid for business cash with $$ from IRA and home equity.
7. I am at a loss as to how to claim the business loss? Reading the rules is not getting my anywhere...I need to know how best to claim the loss (300K invested in 2006). Help.
Submitted: 4 years ago.
Category: Tax
Expert:  RD replied 4 years ago.
How did you report the loss on sale of the business in the tax year 2007?

Customer: replied 4 years ago.

I have to file taxes for 06, 07, 08 - that is why I need guidance on the best way to move forward that gives me the best way to recover.

 

Did not sell busines sin 07, just went under.

Expert:  RD replied 4 years ago.
You need to file the tax return for 2006, 2007 and 2008.
Since you shut down the business in 2007 you will report the loss on disposition of the business in 2007. At that point all the investment that you lost will be claimed on the tax return and result in a business loss. This business loss in 2007 will get carried back to 2006 and 2005 and will offset your taxes for those years. Any unused loss will be carried forward to offset income in 2008.

Let me know if you have any question.

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.


Customer: replied 4 years ago.

Understood - and I have 90% of those tax forms filled out - I am looking for guidance as to which forms to fill out and where (what line item) to claim the loss, that will cover this.

 

So specific guidance for Schedule C, form 4562, section 179 deductions if requited.

 

As stated before the instuctions are not clear, I do not know where to place the loss so that it will 'count properly' - I read 179 to mean that it could only be counted against business 'profits' claimed. Since I am not claiming profit...I am confused.

Expert:  RD replied 4 years ago.
Since the business was bought in 2006 - you will claim depreciation and Sec 179 on your 2006 tax return. Since the business is generating loss you can claim regular depreciation and not claim Sec 179 expense.
Sec 179 expense will not be claimed in 2007 since assets are bought in 2006..

On your 2007 tax return you will claim the disposition of the businesson Form 4797. This will generate the loss on the tax return against the business income.

So you report the Business on Sch C and than report disposition of the assets with zero as the sale price (if you did not get anything from the business disposition) on Form 4797.

Let me know if you have any question.

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.




Customer: replied 4 years ago.

Sorry for the delay - sick kids this weekend. I will clear this up today and approve...

 

To verify - our business was an LLC - form 4797 is still appropriate? I read the instructions and it is not apparent where to fill out the 'sale' loss of out initial purhase price of 300K.

 

This form links directly back to the 1040 or to a line on the Schedule C for 2007?

 

Just want to ensure I get the right data flow and do not leave anything out?

 

Thanks,

Rick

Expert:  RD replied 4 years ago.
Was this a single member LLC filing on Sch C as a disregarded entity?
or did you file a S election for the LLC?

You will report the disposition similar to how you would report a sale. Date of disposition would the the date you shut the business down and the sale proceeds will be zero if you did not get anything for the business.

You will fill out Form 4797-Part I if this is disposition of business assets held for more than a year. Loss from here will flow on to Form 1040 Line 14.

Note that loss from inventory write offs will be reported on Sch C.

I would suggest you have the tax return prepared by a tax professional just so that he can ensure that the necessary forms have been filled and the elections have been made atleast for the year the loss is to be claimed.

Let me know if you have any question.

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.



Edited by RD on 11/9/2009 at 3:15 PM EST
Customer: replied 4 years ago.
Schedule C as disregarded
Expert:  RD replied 4 years ago.
You will report the loss from Form 4797 to Form 1040 Line 14.

and inventory loss, if any, will be reported on Sch C.

Let me know if you have any question.

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
RD and 6 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.