How do I write off my defunct business as a tax loss?

February 27, 2006 11:57 AM

How do I write off my defunct business partnership on my taxes? I ended a 2 year self employment partnership (incorporated LLC) August of this year, walking away with around $8k in personally liable loans, as well as racking up another $5K after my car was repossessed. I want to know how best to claim this loss on my taxes.

My partner and I took a minimal salary from the business that year, doing everything we could to keep our retail computer store afloat. We were not able to pay an accountant near the end and never filed the K1 form at end of year. I'd like to go ahead and fill out my taxes using figures that would go on the K1, as I have the numbers in Quickbooks.

Since my new job has a good salary, I've had quite a bit taken out for takes this year, more than I took home from the store this year. I'd get back $1700 this year without the business loss, but I could get back the full $2600 deducted from my paycheck with the business loss included.

I'm also aware that I can claim the rest of the loss as I pay it back next year as well, right? I expect to have over $12K taken out in taxes in 2006

posted by daHIFI to work & money (4 comments total)

This really really really sounds like the kind of question you'd be better off asking your accountant than asking on Metafilter. Seriously.
posted by jdroth at 12:29 PM on February 27, 2006

Yeah, business write-offs can be tricky. It's worth the few hundred bucks to hire a competent accountant.
posted by camworld at 12:40 PM on February 27, 2006

I know it's not the answer you're looking for, but here is the only valid advice you will get from AskMe:

Talk to an accountant or tax professional.

Nobody on this website is at all likely to know the ins-and-outs of the tax laws for LLCs in your state (which we don't even know), and the Federal laws, and how to relate them to personally liable debts.

I would go so far as to say that taking any other advice on this website besides "talk to a professional" could be downright dangerous.
posted by CrayDrygu at 3:16 PM on February 27, 2006

I was in a similar situation last year. The answer depends on how you elected to have your LLC set up. I elected for the Sole Proprietor option. In my case my large loss came right back to my personal return in Schedule C. It sounds to me that the members of your LLC elected to be taxed as an S Corp, hence the K1. But you should double check. It is possible to change your election, but it may be too late to make the change for 2005.

Here is the IRS take on LLC's.
posted by Xurando at 3:18 PM on February 27, 2006