I invested in a startup company through an "internet startup fundraising platform" in 2016. I've received a K1 statement every year from the "Fund Manager" (a different entity that handles back-office tasks for private equity funds). While looking for the 2022 tax year K1 on the Fund Manager's website I see that they have gone out of business with no way to get any information. I inquired through the "internet startup fundraising platform" website about how I can get a K1 for 2022 and they informed me that they've reached out to the startup company I invested in repeatedly with no response. The "internet startup fundraising platform" (which is now undergoing an acquisition by another company) sent me a letter that says to the best of their knowledge the startup company I invested in has "ceased operations", they never received a "dissolution statement", that "your investment is effectively zero" and that they couldn't advise me on how to account for the investment loss on my taxes. Lesson learned...at this point I'm happy to take the tax loss, but have no idea how to go about it. How do I take the tax loss for my investment in TurboTax?
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Since you received a K-1 in previous years. You may enter a K-1 for 2022 with all zero's and indicate that this is the "final" K-1. If you don't do this, TurboTax will keep carrying forward the K-1.
You can deduct worthless stock or a worthless investment 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.
This is entered in the investment section of TurboTax.
@dissolutionquestioner you need to know your tax basis in the partnership (the same rules for worthlessness as for corporations apply). your tax basis is what you put in plus all items of income and less all items of deductions and losses reported over the years less any distributions over the years. if the 2021 K-1 was done properly the ending capital shown in schedule L should be your tax basis because the IRS required that schedule to be reported on the tax basis. can't give you a guarantee they did this but if you do a manual calculation of your basis and it agrees with schedule L then you have some assurance you have the proper number.
Since you received a K-1 in previous years. You may enter a K-1 for 2022 with all zero's and indicate that this is the "final" K-1. If you don't do this, TurboTax will keep carrying forward the K-1.
You can deduct worthless stock or a worthless investment 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.
This is entered in the investment section of TurboTax.
Thank you for the detailed response!
One more question...my previous K1s for this investment listed interest income (Part III box 6) every year which I paid taxes on but didn't actually collect as it was added to my "capital account balance" every year in "Part II box L" of the K1. So since I paid taxes on it every year, I'm assuming I would add those amounts to my cost basis...in other words my cost basis would be the "ending capital account" in the last K1 I received? There were no other distributions paid, accrued or otherwise noted than these yearly interest income amounts in the box "L" (Partner's Capital Account Analysis). In summary, should the cost basis be the original amount I invested or the ending Capital Account Balance?
Thanks again for sharing your expertise!
Yes, you would enter the ending Capital Account Balance as the cost basis for the company.
Thanks Pattie and Helen. I've entered the K1 and the "investment sale" separately into turbo tax and it looks like in doing so I'm double dipping on the tax loss. If I do the K1 and check final and put my 2020 K1 Final capital account balance as the 2022 beginning capital account balance and make the 2022 final capital account balance Zero turbo tax seems to give me the tax deduction. Should I do that and not the "investment sales" entry...it seems like either one but not both?
Thank you
@dissolutionquestioner you need to know your tax basis in the partnership (the same rules for worthlessness as for corporations apply). your tax basis is what you put in plus all items of income and less all items of deductions and losses reported over the years less any distributions over the years. if the 2021 K-1 was done properly the ending capital shown in schedule L should be your tax basis because the IRS required that schedule to be reported on the tax basis. can't give you a guarantee they did this but if you do a manual calculation of your basis and it agrees with schedule L then you have some assurance you have the proper number.
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