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ABC Accounting Group
ABC Accounting Group, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 712
Experience:  Business Consultant/Accounting Manager
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How does this service work? I have a tax return question, I

Customer Question

how does this service work? I have a tax return question
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: I was a shareholder in a C-Corp that dissolved. I paid some debts on the c-corps behalf personally due to the nature of my relationship with the debtor.
JA: Is there anything else the Accountant should be aware of?
Customer: I am trying to determine how to account for it on my return
Submitted: 1 year ago.
Category: Tax
Expert:  ABC Accounting Group replied 1 year ago.
Hi. It appears that this would have been classified as a loan to the corporation. Usually this would be treated as short-term capital losses. As such, they are subject to the capital loss deduction limitations. Specifically, you can automatically deduct up to $3,000 of capital losses each year even if you have no capital gains ($1,500 if you use married filing separate status).
Customer: replied 1 year ago.
Your answer seems a bit vague, but perhaps I was as well. The corporation dissolved the prior year and no loan documentation exists. I personally knew the debtor company executives and paid the outstanding debt of aprox. $20K after the dissolution occured. I found this on IRS website regarding debt but it references recievables."Debts from a former business-- If you sell your business but retain its receivables, these debts are business debts because they arose out of your trade or business. If any of these receivables subsequently become worthless, the loss is still a business bad debt."
Expert:  ABC Accounting Group replied 1 year ago.
Hi. Quick Question - Did you receive income from this corporation in the past and/or were you actively involved in the day to day activities of the company.
Customer: replied 1 year ago.
One of the debts was a term loan at a bank (that I had personally guaranteed) the other for Accounts Payable to a vendor I knew well.
Expert:  ABC Accounting Group replied 1 year ago.

Hi. Sorry for the delay.

If you have proof that it was a "business bad debt" (you would need a good paper trail, etc.) - Business bad debts include loans to clients, suppliers or business loan guarantees. These are taken as business losses and reported on Schedule C if you are a sole proprietor.

If you do not usually file a Schedule C, you would take these losses against where you would have claimed the capital losses/gains from this corporation -which would be on Schedule D - any losses on this bad debt would be taken on this form; any losses over the 3k limit (re: noted in a response) would be carried forward.

Best Regards.