When a loan goes unpaid, the lender may be able to deduct it, but only after answering several questions first. In the first of two episodes on bad debts, Jeremy follows a $75,000 loan to a family member’s struggling business. He explains how to tell real debt from a gift or equity, when a debt becomes worthless, and why the lender’s own trade or business, not the borrower’s, decides whether the loss is ordinary or a short-term capital loss. He also covers shareholder and employee loans, loans to a single-member LLC, and payments under a loan guarantee.
Connect with Jeremy
https://www.linkedin.com/in/jwellstax
https://www.steadfastbookkeeping.com
Subscribe on YouTube
https://www.youtube.com/@TaxinAction
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This podcast is a production of Earmark Media
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- (00:00) - Failed Loan Tax Overview
- (01:17) - Donna’s $75K Loan Scenario
- (03:32) - Bad Debt Analysis Roadmap
- (06:46) - Bona Fide Debt vs Gift
- (09:16) - Related Party Debt Factors
- (15:05) - Applying Factors to Donna
- (18:38) - Basis and Interest Payments
- (20:58) - When Debt Becomes Worthless
- (28:25) - Partial Worthlessness Rules
- (30:43) - Business vs Nonbusiness Debt
- (36:35) - Shareholder Employee Motive Test
- (41:15) - Disregarded LLC Not Separate
- (44:32) - Guarantees and Subrogation
- (48:03) - Reporting and Forms
- (50:18) - Wrap Up and Next Episode
Connect with Jeremy
https://www.linkedin.com/in/jwellstax
https://www.steadfastbookkeeping.com
Subscribe on YouTube
https://www.youtube.com/@TaxinAction
Earn CPE for Listening to This Podcast
https://www.earmark.app/
This podcast is a production of Earmark Media