Discussion:Recession? What recession?
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| Revision as of 18:23, 15 April 2008 Szptax (Talk | contribs) (How can you keep) ← Previous diff |
Revision as of 17:10, 16 April 2008 WPCPA (Talk | contribs) (. Taxpayer agree) Next diff → |
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| {{ForumReplyPost|UserID=Szptax|Date=15 April 2008|Text=How can you keep a sch C going that is no longer in business? Continue to just post the interest expense on the C, is that what you are saying?}} | {{ForumReplyPost|UserID=Szptax|Date=15 April 2008|Text=How can you keep a sch C going that is no longer in business? Continue to just post the interest expense on the C, is that what you are saying?}} | ||
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| + | {{ForumReplyPost|UserID=WPCPA|Date=16 April 2008|Text=. Taxpayer agrees to pay 40k of the remaining 80k in debt related to the purchase. I have to believe that the taxpayer gets a benefit for the $40k he is paying off above and beyond the $15k he has taken in depreciation, no? | ||
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| + | INHO - the Bank agreed to reduce the 80K debt to 40K - is this not a taxable event - either recognized as Income or as a Reduction of Basis in the Equipment? | ||
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| + | Anyone - but Kevin.}} | ||
Revision as of 17:10, 16 April 2008
Discussion Forum Index --> Advanced Tax Questions --> Recession? What recession?
Discussion Forum Index --> Tax Questions --> Recession? What recession?
| 7 April 2008 | |
| I've had yet another client file bankruptcy and I've researched this and have not found anything concrete. Client has a single member LLC that folded and he filed Chap 13. He is making payments on the restructured debts (they are related to the business). Are these tax deductible? My gut tells me yes (ordinary), but I can't find anything to support that thought.
Any help? | |
| 7 April 2008 | |
| Forget the LLC (assuming it has not opted to file as a corp). The LLC is a disregarded entity. If payments would be deductible as Sch C expenses without the LLC, they will be deductible on Sch C with the LLC (because the LLC is disregarded - does not exist - has no effect). | |
| 7 April 2008 | |
| Yep, we are talking Sch C business here. I guess my question is whether the payments over the next 60 months are deductible, as they are a result of the failure of the business, and are payments to creditors used to purchase business equipment. If they are deductible, and the business is no longer in operation, how are the payments reported going forward? | |
| 7 April 2008 | |
| the payments on the debt are not, per se, deductible
but the charges for the goods and services would have been of course, interest would be | |
| 7 April 2008 | |
| A large portion of the payments are on debt related to equipment that was financed. It seems like these should be deductible some how, as the equipment was only partially depreciated before the financing company repossessed it. | |
| 7 April 2008 | |
| then he already got the deduction on the 4562 and 4797 forms
(assuming you know what you are doing) | |
| 7 April 2008 | |
| What do you mean "assuming I know what I am doing?" I already told you I was not sure about the transaction, which is why I posted here. You know Kevin, I use this resource from time to time, and almost every time I see you post, you make a condescending comment or come across as patronizing and arrogant. I've been a CPA long enough to know that a person cannot know everything about everything when it comes to tax law. I suggest you take a close look at yourself and ask yourself why you are the way you are, and why you act the way you do. This site is a place to share knowledge and help each other. So, although I appreciate the responses to my question, please keep the snide comments to yourself. | |
IDrinkYourMilkshake (talk|edits) said: | 7 April 2008 |
| Kevin is allmighty, didn't you know? How dare you come here and ask instead of just winging it and crossing your fingers! How unprofessional of you... | |
| 7 April 2008 | |
| LOL, MN has a point. I get angry that people with credentials don't take more CPE. But, unfortunately, none of us can know everything. | |
RoyDaleOne (talk|edits) said: | 7 April 2008 |
| No separate bankruptcy estate is created under chapter 13, therefore, I would think that the income and deductions are the same as if the the chapter 13 had not been filed.
Does this mean to report the gain or loss on repossession or the restructured debt? | |
| 8 April 2008 | |
| Shouldn't form 4797 show the disposition of the assets as of the date the business officially failed? And the payments to creditors are irrelevant other than interest charged, if any? | |
| 8 April 2008 | |
| The part I struggle with is that the equipment was taken back by the bank and he is still paying for it. Let's say he paid 100k (all financed) for this equipment and depreciated 15k of it in the year of purchase. Bank takes it back the following year when FMV is 90k. Taxpayer agrees to pay 40k of the remaining 80k in debt related to the purchase. I have to believe that the taxpayer gets a benefit for the $40k he is paying off above and beyond the $15k he has taken in depreciation, no? | |
| 8 April 2008 | |
| Logic would suggest that you should adjust the basis on the equipment and continue to depreciate, as per RoyDaleOne. If that is the case (of which I am not sure), I would think you'd do a like-kind exchange to adjust the basis and continue the depreciation. I'm not sure how the bankruptcy affects this though.
Usually I am too gunshy to respond with guesses, but it seems like you're willing to discuss with others who also aren't sure. Sometimes that's how those of us who don't know everything learn, even if our guesses are wrong. So please don't blast me for giving an opinion. | |
| 8 April 2008 | |
| This sounds logical. So run the sch C bare, with just depreciation on the new basis? Any other thoughts? Someone has to have run into this. | |
| 8 April 2008 | |
| I agree with TaxDude. Wouldn't you dispose of the assets as of the date of repossession? If bank essentially "pays" TP 50K (90FMV-40 debt to be paid), then sale would "recognize" proceeds of 50K. The remaining basis would be a 1231 loss. I haven't researched this at all, but running a bare sch C and claiming depreciation for assets that are long gone seems odd to me. | |
| 8 April 2008 | |
| Seems more logical to me than my earlier statement. Thanks for helping to think it through. So, "the taxpayer gets a benefit for the $40k he is paying off", which was the purpose of the original post anyway. MNCPA - I like CaptCook's answer better than mine. | |
| 8 April 2008 | |
| So disposition price is $90k FMV which means a 5k gain over 85k basis. Remaining 40k in basis is a 1231 loss taken in the year of disposition? | |
| 15 April 2008 | |
| How can you keep a sch C going that is no longer in business? Continue to just post the interest expense on the C, is that what you are saying? | |
| 16 April 2008 | |
| . Taxpayer agrees to pay 40k of the remaining 80k in debt related to the purchase. I have to believe that the taxpayer gets a benefit for the $40k he is paying off above and beyond the $15k he has taken in depreciation, no?
INHO - the Bank agreed to reduce the 80K debt to 40K - is this not a taxable event - either recognized as Income or as a Reduction of Basis in the Equipment? Anyone - but Kevin. | |
