General Tax Questions

[Jograves 357]

If there is a general tax question thread already, I apologize. I didn't see one. I have an issue I was hoping I could get some advice on.

Let's say my friend loaned a relative a large sum of money in 2016 as seed money for a business venture. Just to keep it simple we'll say it's $100k. He wrote him checks and they have promissory notes. My friend found out only recently that his relative is a degenerate, a fraud and a thief. The $100k is gone and it looks like this idiot is going to file bankruptcy because he owes money all over town. The question is how does my friend account for the loan on his income taxes? Can he take it as an expense? Does he have to carry it forward as a loss? Any advice is appreciated.

[pearlandhorn 3269]

If you're going to be giving 100k to people, I'll PM you my address for you to send a check.  I'll even write you "promissory notes".

Anywho, your friend can write off the cost of the investment on schedule D of his 1040 in the year that he decides it's no longer collectible.  You essentially report "bad debts" as a short-term capital loss.  Attach a detailed explanation of the bad debt with your 1040 Schedule D.

An attorney may be able to chime in here but assuming these promissory notes are legit, your friend may have access to some of the liquidated personal assets of the person filing bankruptcy if he didn't incorporate his business correctly.  Is the person filing bankruptcy or his company?  Big difference.  If his company is filing bankruptcy, get in line - if the person if filing bankruptcy, he may be SOL.

 

 

[RollLeft 5040]

Tell your friend to take the smokers.    

[Jograves 357]

I believe the individual is filing bankruptcy. We only just heard the money is gone and we're in the beginning stages. For two years he's told my friend that the money is still there. Meanwhile he's run up credit card debt, taken out high interest loans and robbing Peter to pay Paul. It's a lot more convoluted than I'm letting on but it'll fall into tl;dr territory really quick. 

Thanks for your help though.

[Lobwedgephil 1139]

Will just be written off as a loss like a bitcoin investment. Reason 1a for not loaning money to relatives. 

[Bat Guano 359]

He owes money all over town? Including to known pornographers?

New shit has come to light, man.

[52-80 19140]

Found picture of the promissory note

 

 

 

 

 

Edited November 2, 2018 by 52-80

[Kringelbert Fishtybuns 943]

Are you sure they were promissory notes and not IOUs?  

IOUs are as good as money.  And a 100k one, well, you might want to hold on to that one.

[Not a cat 5651]

So you're saying there's a chance?

[woohorn 1131]

Is your friend's name Billy or April?

[ClubWhatever 12120]

I've seen conflicting guidance on gift taxes.  One school of thought is that you (the donor) pay tax on the amount over the annual limit (say 17k) regardless of whether you've reached the lifetime limit.  Another school says you don't pay tax on any gift until you reach the lifetime limit.  Which is it?   By the way I am talking about gifts to an entity that has no special status, not a charity, not a blind person, just a Joe Schmo who needs a gift because he's poor.  I want to give this individual a large gift for purely selfish reasons.  

Edited May 28, 2023 by ClubWhatever

[nbmishoid 949]

We started giving the annual limit to our kids.  After 10 years they could make the down on a house with half left over.  Also involved each of them as trustees so they mentally participate, I.e. we are all aligned.  
 

Fact is, you can probably route some bigger payment to the target person, if you are careful and don’t care about repayment. 

We also invested something like your amount to a kids business, which vaporized.  We have a repayment contract that they have assigned last place in priorities, business wise.   So now we sit with the dilemma of, should we report this as a loss, it could trigger a tax bill for them.  I suggest you not arrange things such that you have to face this choice.

[Redneck Mutha 7952]

Mother in law passed away in March. Will was in place, my wife and her 2 siblings split everything equally.

MIL owned a business and the family will liquidate it over the next few months. I'm assuming any profit realized after her passing (net of expenses), we'll need to report 1/3 of that on taxes on schedule C?

 

[Biff Tannen 45661]

If there was a dumb tax question amnesty thread, I would post this there, but this will have to do.

This is mostly irrelevant now that I don't even have the same job as the example I'm about to give, but it's just been bugging me and I want to see what I was doing wrong, if anything.

 

Quick and dirty:

Married, filing jointly.  Both with 0 exemptions, which I am of the understanding means the max tax amount should be taken out of each check, ideally to get us close to 0 owed at tax time, or even a refund.  Wife made $170k last year, I made like $75k.

When I threw our W2s into Turbotax, hers by itself showed a refund of like a grand.  When I then throw my W2 in with hers, the refund vanishes and we owed like $4k.  This has been the case the last 3 years or so.  

What have I been doing wrong?

[Catpfish 618]

1 hour ago, Biff Tannen said:

If there was a dumb tax question amnesty thread, I would post this there, but this will have to do.

This is mostly irrelevant now that I don't even have the same job as the example I'm about to give, but it's just been bugging me and I want to see what I was doing wrong, if anything.

 

Quick and dirty:

Married, filing jointly.  Both with 0 exemptions, which I am of the understanding means the max tax amount should be taken out of each check, ideally to get us close to 0 owed at tax time, or even a refund.  Wife made $170k last year, I made like $75k.

When I threw our W2s into Turbotax, hers by itself showed a refund of like a grand.  When I then throw my W2 in with hers, the refund vanishes and we owed like $4k.  This has been the case the last 3 years or so.  

What have I been doing wrong?

Not that you've really done anything wrong, but the tax withholding was changed to put more money in people's pockets throughout the year to goose spending.  It's very common for people to owe now unless you have extra withholding.  Your income probably pushed you into a higher bracket, and when computed at the higher tax rate, your wife's withholding would have been short also.

[Skipper 6127]

2 hours ago, Catpfish said:

Not that you've really done anything wrong, but the tax withholding was changed to put more money in people's pockets throughout the year to goose spending.  It's very common for people to owe now unless you have extra withholding.  Your income probably pushed you into a higher bracket, and when computed at the higher tax rate, your wife's withholding would have been short also.

This happened to me this year as well.  Have been at 0 filing jointly as well which has historically been enough cushion to net a small refund.  I had a large gain last year so made a conservative payment (i.e., more than I owed on the gain) as I had some additional untaxed income.  Assumed I would still get a $10K or so refund but ended up owing a little over $1K.  I have trailing K1's so always extend and file in October but going to have to make a material payment next spring probably to take this into account.

[52-80 19140]

5 hours ago, Biff Tannen said:

What have I been doing wrong?

You allowed her to wear the Pants. 

[Brew 3049]

On 5/27/2023 at 7:21 PM, ClubWhatever said:

I've seen conflicting guidance on gift taxes.  One school of thought is that you (the donor) pay tax on the amount over the annual limit (say 17k) regardless of whether you've reached the lifetime limit.  Another school says you don't pay tax on any gift until you reach the lifetime limit.  Which is it?   By the way I am talking about gifts to an entity that has no special status, not a charity, not a blind person, just a Joe Schmo who needs a gift because he's poor.  I want to give this individual a large gift for purely selfish reasons.  

Old question, but it’s $17k a year individual to individual with no requirement to file a gift tax return. Over $17k requires a gift tax return and uses up part of your lifetime estate exemption over the $17k annual exclusion. $17k basically works like the standard deduction in your individual return, it is deducted from total gifts to determine “taxable” portion offset by the exclusion.

[Brew 3049]

On 5/29/2023 at 4:42 PM, Redneck Mutha said:

Mother in law passed away in March. Will was in place, my wife and her 2 siblings split everything equally.

MIL owned a business and the family will liquidate it over the next few months. I'm assuming any profit realized after her passing (net of expenses), we'll need to report 1/3 of that on taxes on schedule C?

 

Depends on the structure of the business for tax purpose and her will. Generally the estate would operate it until liquidation and they would get a K-1 for the estate, but if the business was specifically left in 1/3 interests then they answer would change.

[Brew 3049]

9 hours ago, Biff Tannen said:

If there was a dumb tax question amnesty thread, I would post this there, but this will have to do.

This is mostly irrelevant now that I don't even have the same job as the example I'm about to give, but it's just been bugging me and I want to see what I was doing wrong, if anything.

 

Quick and dirty:

Married, filing jointly.  Both with 0 exemptions, which I am of the understanding means the max tax amount should be taken out of each check, ideally to get us close to 0 owed at tax time, or even a refund.  Wife made $170k last year, I made like $75k.

When I threw our W2s into Turbotax, hers by itself showed a refund of like a grand.  When I then throw my W2 in with hers, the refund vanishes and we owed like $4k.  This has been the case the last 3 years or so.  

What have I been doing wrong?

The new W-4’s are set to calculate your individual tax balance. There is no married 0 any more. You have to accurately fill it out with the combined incomes for the withholding to work properly because they have complicated it. Your individual withholdings are taking double advantage of the 10%/12% brackets and the combined income has some in the 24% bracket so you are short. Total tax is what it is so you pay it now or later, number is the same.

[UT_OB1 2213]

Nice humblebrag 

[Biff Tannen 45661]

37 minutes ago, Brew said:

The new W-4’s are set to calculate your individual tax balance. There is no married 0 any more. You have to accurately fill it out with the combined incomes for the withholding to work properly because they have complicated it. Your individual withholdings are taking double advantage of the 10%/12% brackets and the combined income has some in the 24% bracket so you are short. Total tax is what it is so you pay it now or later, number is the same.

Thank you

[Jkwellborn 6686]

Old question, but it’s $17k a year individual to individual with no requirement to file a gift tax return. Over $17k requires a gift tax return and uses up part of your lifetime estate exemption over the $17k annual exclusion. $17k basically works like the standard deduction in your individual return, it is deducted from total gifts to determine “taxable” portion offset by the exclusion.

Does the person giving that have to file? Or the recipient?

[Brew 3049]

1 hour ago, Jkwellborn said:

Does the person giving that have to file? Or the recipient?

Person giving has the responsibility to file, it is their estate issue.