Have a Tax Question? Ask a Tax Expert
The S/H loan is a liability. The s/h invested over $600k in 2005 to get the restaurant opened.
I think I get it. It sounds like the s/h loan needs to be converted to equity in order to deduct the loss generated from the sale of assets. Since the loan has been reported on previous returns, can reporting be as easy by just adding a statement to the new return to explain the change on Section L of the 1120s? After this discussion, could I get you to clarify the answer I was provided on my last question from the other expert?
Even easier, as there is no need to include a statement. Of course, you can if you like for your own reference.
Just make the journal entry to reposition the loan to capital contribution ("Additional paid in capital" or similar named account) in the current year. You can even make the entry at 1/1/ 2013 or whichever date you choose in the current year.
On the current year Schedule L just report the amounts in the categories after repositioning. This type of repositioning is not rare at all for clients that have done their own books in my experience.
As to the prior question I am glad to help,but I cannot post to this question unless you, the Customer, relists it. However, that question may then appear to all experts that anyone should answer.
The best way may be to direct another question to me as a new question and include my username in the question. For example, "For jgordosea only, please..."
You may wish to read and review the prior answer to develop any specific questions on the process as that answer does seem to include all that is needed, in general, on recording the sale at a loss in the corporation and the K-1 flowing to the shareholder to report the loss as part of their 1040.
Again, please ask if you need more help with the change from loan to capital. Thank you.
Sorry, I had to respond to a phone call. I will post the other question again specifically to you as we seemed to communicate clearly. Thanks
No problem, I will be on and off here all day (and more).
Thank you for the opportunity to be of service.