How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Wallstreet Esq. Your Own Question
Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 586
Experience:  10 years experience
16356563
Type Your Tax Question Here...
Wallstreet Esq. is online now
A new question is answered every 9 seconds

I have a promissory note that my attorney made for me

Customer Question

I have a promissory note that my attorney made for me because I've had to loan my sister approximately 20,000 to help her in court and for her child support due to her ex husband taking her to court and asking that he be given full custody of the kids. He lost but during the few months they were in and out of court I had to loan her the money for attorney and court fees so my sister sign a promissory note and it's looking as if she will NEVER be able to pay me back. What do I do as far as taxes go? will that $20,000.00 or so that i loaned her help me on my taxes?
JA: The Expert will know how to help. Is there anything else important you think the Expert should know?
Customer: i'm an independent contractor and I'm working as an investment adviser.
Submitted: 1 month ago.
Category: Tax
Expert:  emc011075 replied 1 month ago.

Hi. My name is ***** ***** I will be happy to help you.

Yes, you can deduct it as nonbusiness bad debt, up to 3K per year for the next few years. It is not a credit so do not expect 3k refund but depending on your tax bracket you can recoup between 10 - 40%.

Customer: replied 1 month ago.
What exactly do you mean when you say "recoup"?
Expert:  emc011075 replied 1 month ago.

It means that you will not get the entire 20K back. A $3,000 deduction will increase your refund (or reduce your taxes) by $300 - $1200 depending on your tax bracket. In 10% a 3K deduction will increase your taxes by $300. In the highest 40% tax bracket, a 3k deduction will increase your refund by $1,200.

Most people are in 10 - 25% tax bracket.

Customer: replied 1 month ago.
are you saying that it isn't possible and there's no possible way for me to get the full amount back from her even if she signed a promissory note and it states that it's contingent that if she doesn't pay me back the amount I loaned her, there will be a lien on her home she has up for sale currently and I will be the first collector to receive my proceeds (which is the attorney fees and bills I've been paying for her for months & months). Even though the note states that her home is mine if she doesn't pay, does that not make a difference in what I'll receive from the IRS? Will I still only receive the LOW dollar amount of $3,000.00?
Expert:  emc011075 replied 1 month ago.

The IRS does not interfere with legal disputes. A nonbusiness bad debt can be deducted the way as investment loss, up to 3K per year and you can carryforward the remaining balance to the future years, meaning, next year you can deduct again up to 3k. For tax purposes it does not make any difference where the debt originated or who can or cannot pay. This is a case for an family lawyer.

Customer: replied 1 month ago.
I AM IN THE 33% TAX BRACKET. SO HOW MUCH DOES THAT MEAN WILL BE DEDUCTED FROM WHAT I OWE THE IRS? I ALREADY OWE THEM APPROXIMATELY 70,000 FOR MY 2017 TAXES BECAUSE I DIDN'T ENOUGH ON MY 2017 QUARTERLY ESTIMATED TAX VOUCHERS. MY ACCOUNTANT MISCALCULATED IT...
Expert:  emc011075 replied 1 month ago.

Approximately $990, depending if you have other investment losses and or gains.

Customer: replied 1 month ago.
What do you mean when you say "approximately $990?"
Customer: replied 1 month ago.
Expert:  emc011075 replied 1 month ago.

Without preparing your tax return I cannot give you an exact number. If you have other capital losses for instance or most of your income comes from investment, the refund my be different as if most of your income is from job or self-employment and you have no capital investment. The 3K will reduce your AGI and consequently reduce other deduction that are subject to AGI limits. I have no way of knowing.

An finally there's the AMT - alternative minimum tax. I do not know if the deduction will not be eliminated by AMT.

Expert:  emc011075 replied 1 month ago.

Idealy, 3K deduction in 33% tax bracket would generate additional refund of $990. But we do not live in an ideal world and taxes are not always fair.

Customer: replied 1 month ago.
What does "alternative minimum tax" mean exactly? ��
Customer: replied 1 month ago.
Expert:  emc011075 replied 1 month ago.

If you have more questions I am going to opt out. I answered your original question and need to go to work now.

Customer: replied 1 month ago.
Ok. Thank you for your help.