I received $30,000 from an inheritance, and used the money to open a restaurant. Can I deduct that amount in my personal taxes?

[SweetieJean · Accepted solution]

S Corp tax returns (Form 1120-S) require that you use TT Business. This is available only in desktop form, and then only for Windows.

https://turbotax.intuit.com/small-business-taxes/

You may wish to see a local tax professional to help you get this all set up for the first year. Also see:

https://www.thebalance.com/what-is-a-reasonable-salary-for-an-s-corporation-officer-397939

[Carl]

No. What you used the money for doesn't matter. Money received as an inheritance by the named beneficiary of the deceased is not taxable or reportable on any tax return. Therefore you can't deduct that which you are not taxed on in the first place.

[Artchyck]

But I was taxed on it

[SteamTrain]

as for the taxes you pay....always an exception

......If it came out of the deceased's tax-deferred retirement account (like a pension, or traditional IRA, or 401k, etc) then yeah, it likely will be taxable.

And some states tax inheritances no matter what the source.

[VolvoGirl]

You can deduct what you spent it on as Business Expenses.  Are you a sole proprietor or did you set up an official business entity for the restaurant?  Like a Partnership or LLC or corp?

[Artchyck]

It is a corporation

[SweetieJean]

S Corp or C Corp?

[Artchyck]

S Corp

[SweetieJean]

<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p535.pdf">https://www.irs.gov/pub/irs-pdf/p535.pdf</a>

[SweetieJean]

<a rel="nofollow" target="_blank" href="https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations">https://www.irs.gov/bu...>

[Carl]

The amount of inheritance is not taxable or reportable on any tax return. Ever. There are exceptions and if any apply to you, then you'll receive the appropriate tax reporting document at tax time. For example, if you inherited that money from an IRA, then it's taxable. But generally the taxes are paid by the estate of the deceased prior to being distributed to heirs, and what you get is the after tax amount.
Now what you used that money for is totally and completely irrelevant. However, using any of "your" money (of which that inheritance is in fact, *your* money) to start a business does result in deductible expenses, such as start-up expenses. Where that money came from is irrelevant. I can still qualify as a business deduction for you. Wouldn't matter if you found it on the street, earned it at a W-2 job, robbed it from a bank (if you don't get caught of course), or anything else.

[narsizist]

In 2019 I had used inheritance funds to start up a small business.  It had taken many months to get it opened and once open in Jan 2020 just two months later Covid hit.  Therefore a lack of income but numerous expenses (still have to pay my lease amount).  In 2019 I had worked simply to pay personal bills and received a W2 for that job,  but all inheritance funds went into the business.  I cannot seem to find anything in Turbo Tax that helps with this situation.  I've spent 3 days looking... 

Instead of borrowing from another source with higher interest rate, I was hoping to use my Inheritance money (which was not a lot) to get started and to pay back the inheritance once I showed some income from thew business. . I am a Sole Proprietor LLC and filing Schedule C. 

Another issue is that I am currently going through a divorce as well, and I may be out of luck, but do not want it to inaccurately look like I used my "Job income " towards my business.  If at all possible, how do I separate those two on paper?   It is separated in bank accounts, but I can't figure out how/where to enter the savings account (personal loan) into the mix.

My questions:

1. How do I acknowledge the money is coming from a personal savings account?  Where on Schedule C do I put that? 

2. How is that account labeled and used in Turbo Tax? Is it considered a Personal Loan? If so, I didn't pay interest or make payments yet (without income)

3. Where do I place the deductions that are above and beyond the $50,000 start up allotment?  It looks like that can be depreciated over 15 years? But where is that entered? Do I enter it in the same category as start up? Or, limit that amount of $50,000. on my own and enter the remaining in some other category? 

UGH!!!  I hope someone can help because No income. New Business is Shut down, hence,  I cannot afford a CPA.

I'm not savvy with the terminology so any examples would help too.

Thanks in advance