J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

CHAPTER 11

Bad Debts

Alert

At the time this book was printed, Congress had not extended numerous breaks for 2012 that had expired at the end of 2011. Check the online supplement in February 2013 at www.jklasser.com or www.barbaraweltman.com to see whether these breaks apply for 2012 returns.

No one thinks that the loans they make to others will go unpaid; otherwise, such loans would not be made in the first place. You never expect that the check you've accepted will bounce or that you'll have a chargeback for a credit card payment, but unfortunately these are common occurrences (especially in tough economic times). If, in the course of your business, you lend money or extend credit for your goods and services but fail to receive payment, you can take some comfort in the tax treatment for these transactions gone sour. You may be able to deduct your loss as a bad debt.

In this chapter you will learn about:

• Bad debts in general
• Business versus nonbusiness bad debts
• Loans by shareholder-employees
• Guarantees that result in bad debts
• Special rules for accrual taxpayers
• Reporting bad debts on the tax return
• Where to deduct bad debts

For further information about deducting bad debts, see IRS Publication 535, Business Expenses.