INFORMATION ON DEDUCTING BAD DEBT EXPENSES
- What are some requirements to deduct a bad business debt expense?
- To be able to deduct a bad debt expense the following must be true: Uncollectible amounts need to be related to a business purpose, you must prove amounts owed to you will remain uncollectible, you must have incurred an actual loss (i.e. loaned out money and not paid back, provided services and recognized taxable income but were not subsequently paid for your work, etc.), and there must be a legally binding arrangement and relationship between you and whoever owes you money.
- Can I deduct bad debts if I were a cash-basis business?
- If you are a cash basis businesses and you only record income at the time of collection, you will not be allowed to deduct bad debts for payments you were hoping to receive but never did since these amounts would not have been included as part of your taxable income.
- Can non business bad debt expenses be deductible on my 1040?
- Nonbusiness bad debt expenses can also be deductible on your 1040. You may be able to deduct personal bad debts if the debt is totally worthless, the debt is related to amounts you previously reported as income or loaned, and there is legally binding arrangement. Nonbusiness bad debts are deductible as short-term capital losses on form 8949.
- Is bad debt different from theft?
- Bad debt is different than theft. For example, if you paid an attorney for legal advice, relied on it, and later found the advice to be fraudulent but could not get a refund, this would be considered a theft loss rather than a bad debt expense. Generally, a bad debt expense will only be between you and a customer, client or borrower.