First, please be nice 🙁
Construction business, dad is sole owner. Cash flow problems, I put A LOT of materials, business expenses (subscription premiums, insurance fees, etc) on my personal credit cards. Now, two years in, I don't see me getting reimbursed and I've got about $45k in business related debt. I'm considering filing for bankruptcy, but I'm married and my spouse's income I assume will be too much. Doing research, I stumbled on the option to write it off on my taxes. I have no clue what to do, looking for some advice to help point me in the right direction to do some research.
All purchases that are business related are very clearly for the business, the vendors and companies I purchased from have nothing to do with anything personal I purchase and can all be linked to specific projects.
Thanks
1099 – Best Way to Recover Funds That Were Used to Purchase Materials
byu/SilverMammoth7115 intax
Posted by SilverMammoth7115
3 Comments
There isn’t really a way to “recover” the funds if you don’t have money in the business accounts. If there’s no money then there’s no money. But this stuff should’ve already been treated as expenses/cogs offsetting income for your business.
I’m confused.
Do you mean the business-related expenses?
Or writing off the bad debt you loaned to your father?
Both are possible, but require very different approaches
Note – I’m still in undergrad, so take my thoughts with a grain of salt and continue seeking information / professional advice
My intuition is that you’re *probably* SOL, here.
The expenses belong to your dad’s business, not to you, and according to your comment the businesses accounting has recorded those costs, meaning they are probably already reflected in your dad’s / his businesses tax returns.
You’ve also commented that you’re not interested in pursuing legal action.
A cursory google search tells me that you can maybe seek to obtain a Nonbusiness Bad Debt deduction, essentially turning this loan into a short-term Capital loss, BUT
* you gotta prove (and there’s no specific way to do so) that the debt is COMPLETELY uncollectible
* if you have short term Capital Gains (like from selling stock, or stuff like that), you can use as much of the loss as you want to offset it, but if you’re offsetting against Ordinary income (which is my assumption) you’re limited to only 3k per year, so you’re looking at 15 years to use up all of the 45k loss, from loaning the money to your dad
The IRS page might explain it better than I can : [https://www.irs.gov/taxtopics/tc453](https://www.irs.gov/taxtopics/tc453)
You can’t really “recover” the funds outside of having your dad … pay you back.
If your goal is just to alleviate the CC debt as much as possible, I would say go ahead and look at the actual bankruptcy requirements, that might be the appropriate decision for you and your wife, if your dad can’t ever repay you, and 15 years of 3k deductions is too slow of a burn to get back to evens stevens. Don’t assume you make too much for Ch.7 – I’d recommend actually checking, to be sure. Even if you don’t qualify for Ch.7, maybe you can do a Ch.13, instead, and have a lot of the debt discharged after 3-5 years of payments.
Good luck!