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MequonCPA
MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2325
Experience:  CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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I have loaned my small Scorp money over the years and currently

Customer Question

I have loaned my small Scorp money over the years and currently the corporation owes me close to $10000. Two loans were made in 2008 and the company performed on these loans until 2011. Also in 2012 I loaned the corporation another $5000 to keep running. I chose to close the corporation at the end of 2012. It is worthless at this point. Obviously the two loans from 2008 or long termcapital losses and the loan from 2012 is a short term loss. How do I claim these losses on my personal 2012 taxes which I need to fill out right now.
Submitted: 1 year ago.
Category: Tax
Expert:  MequonCPA replied 1 year ago.
Hi and welcome to JustAnswer:

It is likely that you have a zero basis in the loans and as such will not have a loss.

If you have deducted losses in excess of your basis in your stock, you must reduce the basis in your loans by this amount.
Customer: replied 1 year ago.

I do not understand your answer. To date i have never deducted anything on my taxes regarding these loans as i assumed the company would make enough money over the next few years to pay them back to me. In 2009 and 2010 the company paid me back monthly p reayments according to the loan paperwork etc. Starting in 2011 the company never had enough funds to pay regularly and i got a few small payments. In 2012 i got nothing and in fact loaned the company another $5000. I hAVE NOT DEDUCTED ANYTHING TO THIS POINT EVER?

Expert:  MequonCPA replied 1 year ago.
If you have an S Corp, each year the corporation should have filed tax returns and issued you a K-1. That K-1 would likely have shown a loss. For tax purposes to deduct loss you need to have amounts "At Risk". Did you report the losses each year.
Customer: replied 1 year ago.

YES i always get a K1 and the K1 reflects the net loss or net gain for the business which i then use on my 1040. My thoughts were to address the fact that the company is out of business and still owes me well over $10000. So there is no way for me to write these loans off as long term capital losses or the short term loan this past year as a short term capital loss?

Expert:  MequonCPA replied 1 year ago.

Each year you should have prepared a Form 6198 before determining your allowed loss.

I have provided links to the current form and instructions below. I have also included a link to IRS Publication 925. That explains the rules.

http://www.irs.gov/file_source/pub/irs-pdf/f6198.pdf

http://www.irs.gov/file_source/pub/irs-pdf/i6198.pdf

http://www.irs.gov/pub/irs-pdf/p925.pdf

Until you determine your remaining amount at risk, you cannot determine the amount of loss you will be allowed from the loans you have made to the corporation.

While the corporation may owe you $10K, you may have already received a tax benefit from some of the loans if you deducted losses in excess of your basis in your stock.

While a full analysis of the K-1 activity should be done, I can provide an approximate value of your loan basis if you provide details of the balance sheet immediately prior to liquidation.

Customer: replied 1 year ago.

trying to read the complex tax document....man...ok...what do u need from me then?...thanks

Expert:  MequonCPA replied 1 year ago.

While a full analysis of the K-1 activity should be done, I can provide an approximate value of your loan basis if you provide details of the balance sheet immediately prior to liquidation.

Customer: replied 1 year ago.

i can do that just tell me what details u need? a p&L ? bank register? etc etc

Expert:  MequonCPA replied 1 year ago.
Look at your 2011 corporate tax return and provide the amounts of each account shown at the end of the tax year, Schedule L, page 5

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