For the past 5 years, I have loaned money to a startup I founded, as a way of bootstrapping the company. The company didn't work out, and ceased operations in 2020. I believe I am able to deduct the amount of those loans (minus the remaining cash in the company's bank accounts, which was refunded to me as partial repayment of the loans), but I can't figure out how/where to do that. Any advice? Thanks!
If you personally loaned money to a business that is uncollectible, it would be a personal bad debt (unless you were in the business of loaning money).
However, a debt is closely related to your trade or business if your primary motive for incurring the debt is business related.
Click this link for more discussion on Business Bad Debt.
This IRS link also provides guidance on Bad Debt Deduction.
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It depends. If it is a personal loan, you may claim nonbusiness bad debt as itemize deduction on Schedule A, if qualified. The 2017 Tax Cuts and Jobs Act suspended Employee Business Expenses deduction. If not, you can follow the steps below to enter business bad debt in Turbo Tax.
- Log-on to your TurboTax Home & Business software
- Click on the "Business" tab.
- Click on "Continue"
- Click on "I'll Choose What I Work on"
- "Business Income & Expenses" heading, click on "Update or Start"