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New Member
posted Jun 7, 2019 3:16:22 PM

On Schedule C, where do I enter a bad, noncollectable business debt?

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1 Best answer
Level 13
Jun 7, 2019 3:16:26 PM

The response depends on your method of accounting for your Sch C activity:

  • If you are an accrual basis taxpayer, then you would record this on the "other expense" line and just title it bad debt.
  • If you are a cash basis taxpayer, then there is no bad debt because you have never picked this up into income
If you are talking about a loan that you made, then this will become more difficult, but once again you have two options:
  • If this was truly a business bad debt, related to your trade or business (loan not repaid OR no chance of repayment), then this would be entered on Sch C other expense line.  You have the burden of proof that this is a business bad debt and there are a number of hoops that you would need to hurdle to prove this.
  • If this was a nonbusiness bad debt (same loan not repaid), then this is a capital loss and entered on Sch D and the applicable form 8949.
As Opus noted, there are a number of facts that need to be understood to make a definitive response.  The above will give you some general guidelines. 

3 Replies
Level 15
Jun 7, 2019 3:16:23 PM

More details may be needed but I don't think you do.  You can only deduct a debt if you previously reported the income.  If you did a job for someone and didn't get paid, then you already deducted your expenses.  Now you have no offsetting income, so by simply not having the income you aren't taxed on it.  You can't deduct the loss again.

If you made a loan using after-tax dollars that may be deductible.

Level 13
Jun 7, 2019 3:16:26 PM

The response depends on your method of accounting for your Sch C activity:

  • If you are an accrual basis taxpayer, then you would record this on the "other expense" line and just title it bad debt.
  • If you are a cash basis taxpayer, then there is no bad debt because you have never picked this up into income
If you are talking about a loan that you made, then this will become more difficult, but once again you have two options:
  • If this was truly a business bad debt, related to your trade or business (loan not repaid OR no chance of repayment), then this would be entered on Sch C other expense line.  You have the burden of proof that this is a business bad debt and there are a number of hoops that you would need to hurdle to prove this.
  • If this was a nonbusiness bad debt (same loan not repaid), then this is a capital loss and entered on Sch D and the applicable form 8949.
As Opus noted, there are a number of facts that need to be understood to make a definitive response.  The above will give you some general guidelines. 

New Member
Jun 7, 2019 3:16:28 PM

I got my answer on my first search!  Nice HELP system!