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BAD DEBT DEDUCTIONS If you lend money that you can't collect, that amount of money is bad debt. There are two kinds of bad debts, business, and nonbusiness. Business bad debts arise from your trade or business, such as credit sales to customers or loans to clients, employees, etc. All other bad debts are nonbusiness. Here are some useful tips to get bad debt deductions: 1- You can deduct specific business bad debts that become either partly or totally worthless during the year. For partial bad debt, you can claim a deduction only in the year you make the charge-off your books. 2- For nonbusiness bad debts, the debt must be totally worthless to be deductible. 3- To prove the worthlessness of the debt, you must have evidence to show that you have taken reasonable steps to collect the debt but were unable to do so —for example, the bankruptcy of your debtor, a loan document, etc. 4- Business bad debts are deducted on Schedule C (Form 1040) or your applicable business income tax return. Nonbusiness bad debts are classified as short-term capital losses and reported on Form 8949. For more information, please click on the link below:...