Deducting leftover expenses from a closed LLC

[senditinbigfella]

I was a member of an LLC that ceased operations in 2018.  We filed a final tax return for the LLC, and I received a K-1 which I included as part of my 2018 personal tax return.  The issue is, in June of 2019, 6 months after the LLC was shut down, we received notice from the the city of Philadelphia that we had an outstanding tax balance left over from the LLC (this notice, of course, came 7 months after we received a tax clearance certificate from the city).  As a result, since the LLC had been shut down in 2018 and a final tax return had been filed, my partner and I had to personally pay a total of more than nine thousand dollars to clear the outstanding city tax balance in 2019.  So my question is, can I get a deduction or credit for the tax I paid on behalf of the LLC on my 2019 individual return?  

[Rick19744 · Accepted solution]

I will make some assumptions and then provide some guidance:

• I assume that you maintained a basis schedule of your tax basis in your LLC investment
• I assume that you determined your overall gain or loss after adjusting your tax basis schedule for your final 2018 K-1.
• I assume that you reported this overall gain or loss on your 2018 personal tax return; form 8949 and Sch D
• If the above 3 assumptions are accurate, then what happens here is you will now claim a capital loss for the $$ that you specifically paid.  At this point, if reported correctly in 2018, you have no tax basis.  So essentially what happens is you now have tax basis equal to the amount of $$ that you personally paid; there is a deemed capital contribution for the $$ that you paid Philly. This will be reported on your 2019 tax return; form 8949 and Sch D.  The sales price will be zero and your cost basis will equal the $$ you personally paid (updated tax basis figure).  This will be deemed long-term assuming that you held your LLC interest for over a year.
• This assumes that the Philly tax you paid was either the Net Profits Tax (NPT) or the Business Income and Receipt Tax (BIRT) or a combination of the two.

[senditinbigfella]

I apologize for the delayed reply- I was out of town and haven't had access to my computer for the last week.  Rick19744, thank you so much for your response- it is exactly what I needed to know.  The assumptions you made about my situation were all correct, and it is indeed the BIRT that we had to pay in 2019.

I hope to get back to my return by midweek, and if I have any more questions, I'll certainly be asking you for advice.  Much appreciated!!

[Rick19744]

You are welcome.

[senditinbigfella]

Rick19744,

I am finally back in TurboTax trying to finish up my 2019 tax return, and I have a few follow up questions for you.  In your response to my previous question you wrote:

"This will be reported on your 2019 tax return; form 8949 and Sch D.  The sales price will be zero and your cost basis will equal the $$ you personally paid (updated tax basis figure).  This will be deemed long-term assuming that you held your LLC interest for over a year."

So here are my questions:

1. How exactly do I handle this in TurboTax?  I assume I have to fill out form 8949 first, is this correct?  If so, how do I get this form to come up in TurboTax Home/Business?  

2. What should I use as the description in the long-term section?  Something like "Outstanding Philadelphia BIRT/NPT taxes from XXX LLC"?

3. Once I complete form 8949, will I automatically be taken to Schedule D?

4. Finally, does it matter at all that I am not including a K-1 from the LLC since the final return for the LLC was filed last year?

I am sorry to bother you with all these questions, but in the 12 years I've used TurboTax I've never come across a situation like this so I want to make sure I don't screw anything up.

[senditinbigfella]

Hello,

I apologize if you have already seen what I am cut-and-pasting below, but I wanted to make sure it was something you could see, as I noticed the string in which you answered my question was marked as "solved." I really appreciate your help!

I am finally back in TurboTax trying to finish up my 2019 tax return, and I have a few follow up questions for you.  In your response to my previous question you wrote:

"This will be reported on your 2019 tax return; form 8949 and Sch D.  The sales price will be zero and your cost basis will equal the $$ you personally paid (updated tax basis figure).  This will be deemed long-term assuming that you held your LLC interest for over a year."

So here are my questions:

1. How exactly do I handle this in TurboTax?  I assume I have to fill out form 8949 first, is this correct?  If so, how do I get this form to come up in TurboTax Home/Business?  

2. What should I use as the description in the long-term section?  Something like "Outstanding Philadelphia BIRT/NPT taxes from XXX LLC"?

3. Once I complete form 8949, will I automatically be taken to Schedule D?

4. Finally, does it matter at all that I am not including a K-1 from the LLC since the final return for the LLC was filed last year?

I am sorry to bother you with all these questions, but in the 12 years I've used TurboTax I've never come across a situation like this so I want to make sure I don't screw anything up.

[senditinbigfella]

I have now completed my 2019 tax return in TurboTax EXCEPT for dealing with the Philadelphia NPT/BIRT taxes which I personally paid in 2019 for an LLC that I had been a member of which filed a final tax return in 2018.  If you refer to the response above from Rick19744, he made three assumptions about my situation which were all correct, and at the end of 2018 I had a zeroed out tax basis on the final K-1 I received for the closed LLC.  As such, Rick's advice was this: 

"So essentially what happens is you now have tax basis equal to the amount of $$ that you personally paid; there is a deemed capital contribution for the $$ that you paid Philly. This will be reported on your 2019 tax return; form 8949 and Sch D.  The sales price will be zero and your cost basis will equal the $$ you personally paid (updated tax basis figure).  This will be deemed long-term assuming that you held your LLC interest for over a year."

But here's my problem: I have NO IDEA where to go in TurboTax 2019 to fill out Schedule D and 8949, as none of the options presented in TurboTax seem to cover my situation.  I have played around and tried to make it work in several different places, but since I'm trying to deal with business taxes I paid in 2019 for an LLC that was closed out in 2018, I am totally lost.  Any help you may be able to provide would be greatly appreciated!