If I Paid Corporate Taxes Out Of My Pocket, Is It Deductable?

Fri, Nov 27, 2009

I was a officer in a corporation. I never received any pay. When the corporation when bankrupt it owed sales tax and withholdong taxes. I had to pay these taxes out of my pocket. Are these taxes deductable from my federal taxes.

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3 Responses to “If I Paid Corporate Taxes Out Of My Pocket, Is It Deductable?”

wartz Says:
27. November 2009 at 11:26 am

No based on the theory that you were not engaged in a trade or business.
I have toyed with the same issue for clients but haven’t had any with enough to warrant what it would cost to fight. If there is enough money involved and you wanted to try something novel, you might deduct the expenses on the theory that you were being held as an involuntary surety for the corporation. You should be up front with IRS about what you are doing and have professional help before you try this because it would be about 100% certain to end up in court.

Dana A Says:
27. November 2009 at 11:26 am

You should report them as business-related losses or expenses on Schedule C, I think, but check with an accountant/CPA. It might depend on what your involvement was with the corporation (were you a sole shareholder and CEO, or a minor officer).
I think the “involuntary surety” concept mentioned below is promising. You have to figure out how much money is involved and what your audit risk is before deciding.
I didn’t find the Tax Court opinion referenced below to be particularly helpful on the issue that you raised.
Good luck,
Dana

Hank Roitman, EA Says:
27. November 2009 at 11:26 am

Important detail needed: Were you also a shareholder?

wartz Says:
27. November 2009 at 11:26 am
No based on the theory that you were not engaged in a trade or business.
I have toyed with the same issue for clients but haven’t had any with enough to warrant what it would cost to fight. If there is enough money involved and you wanted to try something novel, you might deduct the expenses on the theory that you were being held as an involuntary surety for the corporation. You should be up front with IRS about what you are doing and have professional help before you try this because it would be about 100% certain to end up in court.
Dana A Says:
27. November 2009 at 11:26 am
You should report them as business-related losses or expenses on Schedule C, I think, but check with an accountant/CPA. It might depend on what your involvement was with the corporation (were you a sole shareholder and CEO, or a minor officer).
I think the “involuntary surety” concept mentioned below is promising. You have to figure out how much money is involved and what your audit risk is before deciding.
I didn’t find the Tax Court opinion referenced below to be particularly helpful on the issue that you raised.
Good luck,
Dana
Hank Roitman, EA Says:
27. November 2009 at 11:26 am
Important detail needed: Were you also a shareholder?

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