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PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4471
Experience:  35 years tax experience, including four years at a Big 4 firm.
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I have been scammed to the tune of $22,000. I have set up

Customer Question

I have been scammed to the tune of $22,000. I have set up an LLC and this money is my start up costs. Can I pass the loss to my personal tax liability in the next couple years?
Submitted: 2 years ago.
Category: Tax
Expert:  PDtax replied 2 years ago.
Welcome to the site. I'mCustomer and will be helping you today.
Investment losses can't be realized until the loss has been realized, not that you think you have been scammed. There are several steps you have to take before claiming the loss as a bad debt (capital loss).
The IRS put out a Tax Topic web page covering tax treatment of the subject. An excerpt and the web cite follow:
"There are two kinds of bad debts – business and nonbusiness.
Generally, a business bad debt is one that comes from operating your trade or business. You can deduct it on your business income tax return.
The following are examples of business bad debts (if previously included in income):
Loans to clients and suppliers
Credit sales to customers, or
Business loan guarantees
A business deducts its bad debts from gross income when figuring its taxable income. You can deduct business bad debts in part or in full. You can claim a business bad debt using either the specific charge-off method or the nonaccrual-experience method.
All other bad debts are nonbusiness. Nonbusiness bad debts must be totally worthless to be deductible. You cannot deduct a partially worthless nonbusiness bad debt.
A debt becomes worthless when the surrounding facts and circumstances indicate there is no reasonable expectation of payment. To show that a debt is worthless, you must establish that you have taken reasonable steps to collect the debt. It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. You may take the deduction only in the year the debt becomes worthless. You do not have to wait until a debt is due to determine that it is worthless.
Report a nonbusiness bad debt as a short-term capital loss on Form 8949 (PDF), Sales and Other Dispositions of Capital Assets, Part 1, line 1. Enter the name of the debtor and "bad debt statement attached" in column (a). Enter your basis in the bad debt in column (e) and enter zero in column (d). Use a separate line for each bad debt. It is subject to the capital loss limitations. A nonbusiness bad debt deduction requires a separate detailed statement attached to your return.
For more information on nonbusiness bad debts, refer to Publication 550, Investment Income and Expenses. For more information on business bad debts, refer to Publication 535, Business Expenses." is the link to their web page.
Note they agree that the investment you made must be completely worthless to claim it, unless it qualifies as a business bad debt (unlikely).
Thanks for asking at Just Answer. Positive feedback is appreciated. I'mCustomer