Tax Year Prior to 2020: Closing an S Corp that has credit card and loan debt I paid personally

[savvy steve]

I am using both TurboTax Premier and TurboTax Business for the S Corp which I am the sole owner. I closed the business in November 2019 and it owes on a loan and credit card. The sales of assets were not enough to cover these debts. I have transferred these debts to a personal loan. Where do I account for this increased debt in TurboTax? This year there was not enough income to need a balance sheet for TT Business.

[WKins2]

Even though a balance sheet is not required, keep in mind that the company should have no assets or liabilities on its final return. So it sound like you sold the assets and have some liabilities remaining that you will pay off as a personal loan instead of the business paying them as a business loan. 

For the business, this would be the equivalent of a capital contribution made by you and would increase your basis by the amount of the loan and credit card that will now be paid by you instead of the business. It will not affect the tax return, only your basis in the company. 

For your personal return, you will report the dissolution of the S Corporation on Schedule D similar to the way you report a stock sale. Assuming you owned the business for more than 1 year, you would have a long-term capital loss for the amount of basis you had remaining in the company. If, after accounting for all of the asset sales and other items, you had a negative basis, you would report that as a long-term capital gain. 

[placesmobile]

I too am in the process of closing my s-corp.  My situation is a little different.

Over the years I have depreciated my company assets (equipment) completely. The equipment (cameras, computers, drones, etc) are older and out of date and have no re-sale value. The s-corp owes me for a loan of approx $19,500 and there is no cash or equipment value to pay me back.  The business has shown this debt to shareholder on taxes since 2013, but it does need to be increased for 2019 for an additional $8000 loan I provided the corporation (put on my personal credit card).

I don't know how or where to insert this into mix, nor how I will tax-benefit personally as a result of this un-recoverable investment. Can you provide some guidance please?

[DianeC958]

You would report the loss in the Investment Section of TurboTax similar to a stock sale.  When TurboTax asks if you received a 1099-B you answer no and then on the next page pick the bottom option Everything Else to report the loss.

[evest2]

I have similar situation but with a C Corp. I incorporated a C corp in 2014 that we closed in 2020 due to the pandemic. There were 13 investors in the company plus myself. Like many small businesses, I would transfer money into the business account when the well started to run dry, and our accountants would log it as a loan on the books. In the previous response, it would seem that I would record the total of all of those injections as the cost basis for my stock. Is that correct?

Also, the two business credit cards were of course personally guaranteed by me, so I'm now on the hook for those after the death of the company. The amount is substantial. I've read some posts that I cannot deduct the interest, but I find that hard to believe, since all charges were documented for business use. I do have some 1099-NEC income. Perhaps I could run the credit card interest through that business activity, starting with the closure date of the company? Any help would be appreciated.

[savvy steve]

I really feel for you. I could not deduct the credit card debt from last years taxes. I was steered by my original accountant to make the business an S Corp in California for the tax benefits. That probably changed over the years but CCorps are very different. I wish you luck and hope that you find a solution. Still slowly paying off my debt