You may not always be able to collect the debt that's owed to your business. Fortunately, there is a strong probability of writing off these business bad debts.
Let's dive into the business bad debt deduction.
A business bad debt is an unpaid amount owed to you that you cannot collect on. Further, you previously reported these on your gross income. In most cases, the uncollectible portion is deductible.
Business bad debts can come from many things. A business bad debt can include:
You can deduct business bad debts and non-business bad debts under certain circumstances.
In fact, business bad debts are deductible when:
Therefore, you can deduct non-business bad debts if the liability is entirely worthless.
You can deduct qualifying business bad debt either in part or full from your gross income when figuring taxable income. Claim the business bad debt deduction in one of two ways: the specific charge-off method or the nonaccrual-experience method.