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Ask Mark Taylor Your Own Question
Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1644
Experience:  Certified Public Accountant
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My son and I justed closed our LLC business. We had taken

Customer Question

my son and I justed closed our LLC business. We had taken out a business loan two years ago and the bank required that I personally guarantee it. Since the business closed, I paid off the loan. Can I claim this as a business loss? I never had any income from the business. If I can, what documentation do I need for the IRS.
JA: The Accountant will know how to help. Is there anything else important you think the Accountant should know?
Customer: I was the business's CEO, but again, I received no compensation or return on the money I invested in the company.
Submitted: 2 months ago.
Category: Tax
Expert:  Mark Taylor replied 2 months ago.

Hi, my name is Mark. I will be happy to help you with your question. Yes, you may be able to claim this amount as a loss on your return. This will depend on whether you already claimed the loss. How long has the LLC been in business?

Customer: replied 2 months ago.
The business was open for four and a half years. I think my accountant claimed my original investment as a partial loss last year, but I'm not sure. This business loan I paid off occurred Dec. 26 2016, so this has not been claimed.
Expert:  Mark Taylor replied 2 months ago.

You would need to make sure that you are not double counting the loss. If you review the K-1's for each year the total losses should not be more than what you contributed to the LLC and the amount you paid for the loan.

A long is recorded as a liability. Let me give you an example. Let's say a LLC is started out with a loan of $100,000. The balance sheet will show $100,000 in cash and a liability of $100,000. During the year the LLC lost $100,000. Cash is now decreased to zero and the capital accounts will show a negative $100,000. The members would only be able to deduct the loss if they had basis or were at risk. If the members were personally responsible for the loan they would be able to take the loss in the year it occurred. If not the loss would be suspended. If this is the case then the loss would be available if the loan is repaid.

Customer: replied 2 months ago.
Ok, I pretty confused. I'm almost sure that the business barely broken even the past two years... I don't have the returns in front of me. What type of documents would I need to provide to our accountant to claim this loan I paid as a personal business loss?
Expert:  Mark Taylor replied 2 months ago.

I am sorry I did not mean to confuse. The point I was trying to make is that the loss may have already been claimed on your return. The loss could be separate from paying the loan off.

You would need to let your accountant know that you paid off the loan personally. The amount of loss that you claimed over the years should equal what you paid into the LLC plus the loan that you paid off.

Expert:  Mark Taylor replied 2 months ago.

It is possible that you may have already claimed the loss.

Customer: replied 2 months ago.
Understood. I spoke to my accountant last week and he told me that the IRS required specific documentation for the loan. We have the documents I signed, so I thought that was enough.I invested $25,000 to start the business, another $5000 in Feb of 2015, and now another $19,000 to pay off the loan. I know the $5,000 was not claimed and not the loan payoff either...
Expert:  Mark Taylor replied 2 months ago.

The loan documents should be sufficient to substantiate the loan. You would also want to show that you paid the loan (so a cancelled check or debit from your bank account). A statement from the lender showing that the loan is paid is also helpful.

Customer: replied 2 months ago.
Ok, thank you. I'll pull those documents together.
Expert:  Mark Taylor replied 2 months ago.

It was my pleasure.

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