Deducting expenses in 2020 for a business sold in 2019

I sold my business (an LLC) in 2019 and filed the final 2019 Form 1065 business return in early 2020. During 2020, I paid out of my personal bank account outstanding business credit cards of approximately $20k. Can I deduct this $20k on my personal 1040 for 2020? If so, does this get reported on Schedule C? Thank you!

179

Level 15

Mar 3, 2021 3:53:43 PM

this becomes in part a legal question because the purpose of forming an LLC is to avoid having to pay that debt.

check this article to see if you had any legal liability to pay the debt or alternatively consult a lawyer.

https://www.nolo.com/legal-encyclopedia/personally-liable-llc-corporate-debt-bankruptcy.html

so if you had no liability to pay, the $20K wouldn't be deductible. however, there is a giant loophole. paying that debt to maintain your business reputation might allow a deduction.

also see this article - Owners liability after LLC is closed or dissolved

https://kkoslawyers.com/owners-liability-after-your-llc-is-closed-or-dissolved/

if you conclude or get legal advice that the debt is deductible it would be reported on the same form used in the past.

Why sign in to the Community?

Deducting expenses in 2020 for a business sold in 2019