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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4808
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Hello I would like to support a friend of mine, who needs

Customer Question

I would like to support a friend of mine, who needs money for a struggling business they own.
The business has little value; and it is likely i wont get my money back.

I wanted to know how to invest the money so that if i do not get my money back i can offset these losses against taxed income that comes from my dividend shares each year.

I could either invest in my friend directly or the company
Submitted: 4 years ago.
Category: Tax
Expert:  bigduckontax replied 4 years ago.
Hello, I'm Keith and happy to help you with your question.

Sorry to be the bearer of bad news but you can't offset such losses against taxed income, but wait!

Invest in the company by buying shares when you are an employee of the company. Then if the company goes to the wall you can offset the cost of the shares against tax in the tax year of cessation by the company. A quick way to becoming an employee is to be appointed a director. However, if the company is improperly run as opposed to simply mismanaged, for example gets involved in fraudulent preferences, you could as a director bear some of the responsibility and incur possible liability.

If you invest in your friend directly you have little protection. Should he go bankrupt you would merely be an unsecured creditor, very low in the distribution pecking order. Please be careful not to over extend yourself in this matter. I once did this for a friend and bought shares writing off the amount in my mind immediately. Some year later when his company went pop this investment was allowed against my income in that year. I was the company secretary and in receipt of a very modest salary. By the by at 70 I'm still employed by him!

If you are not an employee and have bought shares which have become worthless these are losses against any capital gains you may make elsewhere. Capital losses of this nature can be carried forward from year to year if needed.

I do hope I have been of help, but please do not over extend yourself financially.