Business or Personal Loan Conundrum

[The Toolman]

Borrowed 14k from a relative in 2015 (with full-fledged notarized promissory note) to start a 501(c)(3) thrift business.  It was deposited into a separate business account and 100% used for start-up and operating costs.  After two years, I had to close business for upon a stage IV cancer diagnosis, even though it was only a month or so away from turning a profit.  In 2018 I had to pay back the 14k, but with my 100% of my personal monies.  My question therefore is: Is this deductible on my personal 2018 tax return, please?

[Hi Palms]

sorry.....you can't write off money that was borrowed and then paid back personally.

[The Toolman]

Thank you for your reply.  It's a shame as it is a lot of $ to just let drop, and was 100% put into the business.  I'd imagine had I structured it differently...

[Hal_Al]

"Was 100% put into the business."

Then, you should have  already deducted it when you spent the money on the business.  You deducted it as business expenses or as  depreciation of any capital assets you purchased.

You essentially got deductions for spending "other people's money" .  You don't get a 2nd deduction when you pay those people back.

Interestingly, if you don't pay that person back, he can deduct the "bad debt".  But he has to jump thru some hoops to prove it's a genuine bad debt

[Hal_Al]

If you did not take those deduction on previous year returns, you may still file amended returns.  In the year you go out of business, you may write off (deduct)  any remaining depreciation or start up cost amortization.  Unsold inventory may not be deducted, as you still have ownership of it. Inventory sold are reduced prices (going out of business sale) can be deducted. But you have to report the sale proceeds as income

[Carl]

Borrowed 14k from a relative in 2015 (with full-fledged notarized promissory note) to start a 501(c)(3) thrift business.

That means IRS Form 990 would have been filed with the IRS for tax years 2015, 2016, 2017 and 2018. FYI for others reading this thread, TurboTax does not provide or support that form. So you can't use TurboTax to file a tax return for a 501(c)3 at all.

In 2018 I had to pay back the 14k, but with my 100% of my personal monies

Depending on how the 501(c)3 is set up and structured, can *you* make a tax deductible donation to the organization? If so, then if your 501(c) is registered as a 50% organization you can deduct 50% of your donation from your taxable income. If a 30% organization, then you can deduct 30% of the donation.

Then you let the 501(c)3 pay back the borrowed money. Hey, a 50% or 30% deduction is better than zero percent, right?

I would suggest you get with a tax professional on this. BTW, the IRS Form 990 is late for 2018 (assuming you haven't filed it yet) Assuming you set up the organization on a calendar year, it was due May 15th, 2019. For information on due dates, extensions and potential penalties, see https://www.irs.gov/charities-non-profits/annual-exempt-organization-return-due-date