Can this situation lessen my tax liability at all?

Question

I had a business with my brother - it operated for 11 mo's in 2004 and then went under. I personally guaranteed one of the debts, and also paid a few small ones that I did not personally guarantee...in 2006, paid $2,000 toward the one I personally guaranteed...

Does this count for anything at all when calculating my 2006 personal return? Or do I have to ammend my 2004 return (again, if this payment has any bearing on that)...

Anybody know?

Thanks!

Answer 1

I going under the assumption that you and your brother formed a general partnership or an LLC taxed as a partnership. If you where taxed as a corporation different rules apply. I am also assuming that you filed Form 1065 for the partnership. If you did not, see a proffessional and file.

The thing you need to know is how to figure out your tax basis in the partnership.

This is what should have had happened in 2004. You put money and property into the partnership, the partnership had loans, you had loans that you guarenteed for the partnership, the partnership made money, the partnership paid bills, and after it closed it distributed to you money and property.

To figure your tax basis add the money and property you gave to the partnership plus the loans you guarenteed, plus your share of the money the partnership made, minus your share of the bills (which would include the un-guarentee debt).

Next you need to figure out your capital loss for the partnership. The sales price is what you received in money and property from the partnership and subtract that from the tax basis and there is your loss on your 2004 tax return.

This will take into account the debt that is owed. The only thing that does not count is your brother's share of the un-guareented loans. If you paid off your brother;s share of the other loans, than your brother owes you for his share. If he is unable (which is different than unwilling) to pay off his debt you than can take a bad debt deduction in the year that the debt becomes uncolectable.

Answer 2

The losses should have already been recorded by the business, which would then pass to you and your brother for Schedule C of your individual tax returns (I'm assuming it was a basic partnership, not a corporation). Because the losses have already been taken, you would not get to deduct them again.

If the losses were not already taken, you may need to see a tax professional to straighten it out.

Answer 3

If you personally guaranteed it, you used your personal resources, not the company's. Did you have an LLC or Corp?