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I am assuming that since you lost the suit and had a judgement filed against you, that you could not prove that you have made a loan. You did not have a loan contract nor were you paid periodically principle and interest. Is this correct?
You can write off the loan as bad debt if
There must be a true relationship between the creditor and the debtor if you lend money to someone. You must have bona fide documents showing the debtor's obligations towards your money. The main intention is to determine that you have lent money to be repaid, and not as a gift. The document can contain details of
If you have already recorded the amount in your income or loaned out your cash, bad debt can be deductible in income tax.
To write off non-business bad debt in tax return, it must be totally worthless in that year. Unlike business bad debts, partially worthless non-business bad debts are non-deductible.
The loss is taken as short term capital loss on Sch D.
yes, my friends business. $30k loan.
The loss is then offset against other capital gain first then at $3000 per year which can be carried back 3 years by amending returns or forward
If you are audited, you would have to prove the debt was a loan.
Hopefully this answers you question. If so, please accept so that I receive credit and leave a comment if you would like.
Do you have any further questions?
I paid the judgement in full, can I use this paperwork? I do not have any loan paperwork, just a handshake agreement.
If the judgement states that it was a loan. My thought is the judgement was issued against you because the court determined it was not a loan. There could be other reasons. What was the reason why they were able to come after you?
I had ownership in another business that we were partners and they tied both together. My amount was tiny compared with the other judgements.
My partner had mixed some of the banking accounts, that where they tied together.
Sounds like no hope for a write-off
Do you still operate the business or a business?
closed several years ago
When was the judgement entered and when was it paid? What year?
Was the judgement amount tied to the loan repayment amount at all?
entered in 2008, paid in 2009
no, the loan was $20k and judgement was negotiated at $30k
So, this was a settlement not a judgement?
yes, sorry that is correct
In my opinion, the settlement of a dispute tied to business dealings is not punitive in nature and would qualify as a business expense. Since the business has closed this is a business expense ongoing after the closing of the business and where it is deducted depends on what business structure you operated. Was your business and LLC, S Corp, Corp, Sole Prop, or Partnership?
Did you get a K-1?
Who paid tax on the S Corps profit?
no profit, the business was a new entity and operated for less than 2 years
Who took the loss?
An S corp issued K-1s to the owners always.
the business ran out of money and nothing was filed, plus the law suit etc
OK. Past the fact that they should have been filed. The expense is best taken on 1040 Sch E pg 2 as an unreimbursed partnership expense.
ok thank you