Terminated a sole proprietor LLC in 2022. Capital contributions resulted in negative equity. How do I report this negative equity?

Forum|Forum|3 years ago
March 24, 2023
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TurboTax Online

Best answer by AliciaP1

Thanks Mary,

Exactly that is my question.... How to accomplish this? Where and how to do that?

Here is the scenario: I'm using TurboTax...

1. I've indicate on Sch C that the business was terminated.

2. I was expecting TT to continue on with questions related to the termination such as "is there a loss or a gain", how was it distributed"... things of that nature.

3. And then present based on the step-by-step questionnaire, create a form (which one: 4797, Sch D, Sch E, Sch C?) and add either gains or losses to the 1040, 1040SR or Sch 1.

4. And of course, calculate losses limitations, if any.

TT is not doing anything like that. So I fear TT has failed me.

What do I do?

Armando

Schedule C losses are recognized each year with the operations of the business. When you mark to terminate the business, you will still enter the income and expenses for the year. Since you made capital contributions and still ended up with negative equity, your net earnings for the year should show the loss. Also, you need to "dispose" of any assets you were using in the business and switch them back to personal use or record the sale if you sold them. Once you have done all this, TurboTax will deduct your allowable loss from your other earned income.

To mark a business asset changed to personal use in TurboTax Online you can follow these steps:

Within your tax return use the magnifying glass icon to search for Schedule C
Click the Jump to link
Click Edit or Review for the line of work the asset is under
Scroll to and click Edit for Assets
Click Yes on the Do you want to go directly to your asset summary? screen
Click Edit for the asset you need to change
Continue through the questions until you get to the Tell Us More About This Asset / Large Purchase screen
Check the This item was sold... line
Make sure any other boxes are checked as they should be and Continue through the questions for this asset
Repeat the steps for any other assets on your Asset Summary screen
Proceed entering/reviewing your return

@concisa

RobertB4444

Capital contributions and negative equity are balance sheet entries. You'll enter that into the final year balance sheet and then that will wrap up the business. The negative equity won't have any effect on your income or expenses for the year.

@concisa

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concisaAuthor

Thanks a lot, Robert...

If I understood your answer correctly... that means the capital invested in the business cannot be used as losses? As opposed to losses I'd have incurred if it were a corporation rather than a LLP?

Putting it another way >>

The balance sheet shows the negative equity. If it were a positive equity, it would be distributed to the sole proprietor as dividend, because it is negative, it is not distributed.

Am I understanding this correctly?

Thanks

Armando