Defunct LLC expenses

[g555]

Here's the situation: I had an LLC which was treated as a sole proprietorship for tax purposes. The business ceased operations in 2015, but I was behind on rental payments. I declared personal bankruptcy some years later, and some of the bankruptcy payments go towards paying off the outstanding rent which was incurred while the business was still operating. Can I claim the amount payed towards rent (via bankruptcy) as a business expense on my current taxes?

[JosephS1 · Accepted solution]

No, not at this late date.  You would have needed to keep the business, at least appearance-wise, active in some way.  Since this was a single-member LLC, and you did originally file a Schedule C as a disregarded entity, the settlement payments for rent after closure were therefore personal expenses at this point in time and not deductible as personal expenses are not deductible.

If you had closed your business in 2022, the expenses would have been deductible but unfortunately, that is not the situation here.  Had your business been a general partnership or an 1120-S, then it could have been argued for deductibility as the business itself is recognized as a viable entity.

The link below will take you to the IRS Publication 334, Tax Guide for Small Business, which you may find helpful.  

IRS Publication 334

Closing a business per IRS

@g555