I invested in a friend's start-up via a convertible note. The business has ceased operations and I am curious how to write off this investment.

You would report the loss as worthless security. Worthless securities are claimed in the year they became worthless.  Here is data entry:

1. Federal Taxes
2. Wages and Income
3. Investment Income
4. Stocks, Mutual Funds, Bonds and Other - follow the prompts;  please indicate that you have not received form 1099-B; select Bonds as your category; your sale date is Dec 31; proceeds are zero.

Where is this for 2021 online version? Don't see this?

The worthless security is entered in the Investment Income section. If you did not receive a 1099-B for this sale, it would still be recorded in the 1099-B section of TurboTax.

•  Open (continue) your return, if you haven't already
• Locate the search bar. Search for 1099-B, then select the Jump to link in the search results
• Choose how you want to enter your 1099-B
• to enter your 1099-B manually, select Enter a different way, then select your investment type on the next screen

You would enter all of the information as though you did have a 1099-B with worthless as the description and December 31, 2021 as date sold.

 

When entering the information, be sure to select that you did not receive a 1099-B form

 

 

You can deduct worthless stock only in the tax year it becomes completely worthless. This normally happens when the corporation files for bankruptcy, stops doing business, and has no assets. Financial difficulties won't make a company's stock worthless unless there's no hope that the company will pull through.

Enter a worthless stock like any stock sale but with a sales price of zero and the word worthless in its description. Enter the correct cost or basis, date acquired, and December 31 as the date sold.

 

@Sam123

As a follow up, do you just only write "worthless" in the description or write name of stock, shares, etc + "worthless" in description?

 

@PattiF 

Just labeling it worthless is sufficient.

 

@Sam123

What if there is no brokerage name for this as a startup investment? Do I put "None" as Brokerage name as it is required on TT online?

 

@AliciaP1 

@PattiF 

You can enter the name of the start-up in place of the brokerage name, or "None" if there is no name.