Can I deduct a loan I gave someone on Schedule-C?

Question

TAX QUESTIONS! Please

I lent someone $2000 during the tax year and they didnt pay it back until the next year. I dont have thier SSN but I do have the original check that was written to them. I wish to somehow deduct this on my Schedule-C but its over $600 so cant be considered non-employee compensation.. should it be a consulting fee? He was sort of a consultant.


Also alot of payments for services (security, graphic design, street team promoters) were made to companies/regular people with Credit cards and checks.. but some were made in cash.. can I deduct these?

Answer 1

No you can't deduct the loan. It wasn't a bad debt if it was paid back the next year. And if he paid it back, it sure wasn't a comsulting fee. You're on real thin ice if you try to deduct this -it would basically be fraudulent.

If you have some supporting documents on the expenses you paid in cash, like maybe invoices from the people and statements showing them as paid, you could deduct them, although in an audit they might or might not be accepted. But it's VERY bad practice to pay business expenses with cash for anything that's larger than would be paid from a petty cash fund, and then you should have receipts.

Answer 2

You can't deduct a loan at all. If anything it would be an Accounts Receivable or an Asset because you are expecting the person to pay you back. The only benefit you can get out of giving a loan is interest income. In order for the amount to be deductible as a consulting fee you would not be able to receive repayment.

As for your other deductions, they are deductible on your Sch. C if they were for your business expenses. It's always best to be safe and have receipts handy in case you get audited. It doesn't really matter who you paid for the service though or how you paid as long as it was done in the current year and was for business purposes.

Answer 3

I believe you can only deduct a loan if it was not repaid. Hold on, I'll check

Here's some info:
http://www.irs.gov/taxtopics/tc453.html