taking investment loss as operating loss in LLC

[redmadcap]

What is the name of your state (only U.S. law)? Georgia

In 2006, I formed a manufacturing company as a S-Corp, which I will call ABC Inc. I invested $100K and I worked full time in the business. In 2009, I took full-time job with another company to help pay the bills, but continued to be active in ABC Inc. I now plan to close ABC Inc and will lose the entire capital of $100K.

1. Since I was an active investor, can I write-off the $100K loss against my ordinary income?
2. If I form an investment LLC, called XYZ LLC, and transfer my equity ownership of ABC Inc into XYZ LLC (before ABC closes), then I assume that XYZ LLC will take the equity loss. As a flow through entity, can I then write off the $100K as operating loss in XYZ LLC and offset ordinary income?
3. Would #2 above work better if my wife (married filing jointly) was the owner of either or both ABC Inc stock and XYZ LLC?
4. Would it make a difference if the $100K put into ABC Inc was a loan rather than equity?

Thanks!What is the name of your state (only U.S. law)?

 

[tranquility]

You need to see an accountant to review all the facts. But as a wild guess:

1. No. You already took the loss through the years.
2. No. See supra. Besides, why would you want to *sell* your stake to another company? You'd have to pay on the capital gain (At the very least, what your plan is is not entirely clear.)
3. No. See supra.
4. It would just complicate things. You would get a bad debt, but would also have to take the COD income through the S-corp.

The money was invested, it's gone. You got the appropriate tax advantage already.