“A person who has never made a mistake never tried anything new.”
Founding and providing financing for startups and private companies can be risky. If the venture fails, it may be possible to salvage part of your investment by claiming a tax loss. If you lend money to a business that is related to your employment or business, or if you make a bad investment in a Ponzi scheme, you may be able to claim an ordinary loss. Individuals who return their bonus or pay restitution may also qualify for an ordinary loss. However, there are many restrictions on claiming such losses including:
- Personal losses (for example, losses from the sale of your personal residence) are generally disallowed.
- Capital losses may only be used to deduct $3,000 of income per year.
- Losses from transactions involving related parties are frequently disallowed.
- Losses from “passive activities” such as many investment partnerships are subject to limitations.
- When claiming a loss, it is important to understand what type of loss you may qualify for and what risks you are facing. For more information on how JVL Tax Law can help, see Bad Business Debt, Theft Losses and Casualty Losses, Partnership Losses, and Restitution.