Get your taxes done using TurboTax

It appears you are contemplating taking a business bad debt deduction.  TurboTax CD/download can handle a business bad debt deduction.  You are correct in that a business bad debt deduction can offset ordinary income such as W-2 income, interest, and dividend income. This type of debt can also result in creating a net operating loss on your individual return when you don’t have enough income to offset the business loss.

To deduct a business bad debt, the taxpayer must show that the debt was created or acquired in connection with a trade or business and must also establish the amount of the debt, the worthlessness of the debt, and the year that the debt became worthless.  Whether a debt was created--versus an equity investment--is a question of fact.   Factors that are relevant in determining whether a valid debt/loan was created are:

1. whether the promise to repay is evidenced by a note or other instrument that evidences indebtedness; 
2. whether interest was charged or paid; 
3. whether a fixed schedule for repayment and a fixed maturity date were established; 
4. whether collateral was given to secure payment; 
5. whether repayments were made; 
6. what the source of any payments was; 
7. whether the borrower had a reasonable prospect of repaying the loan and whether the lender had sufficient funds to advance the loan; and 
8. whether the parties conducted themselves as if the transaction was a loan. 

If you feel that you can claim a business bad debt, then in TurboTax CD/download, follow these steps:

1. Click on the "Business" tab
2. Click on "Continue"
3. Click on "I'll Choose What I Work on"
4. Locate "Business Income & Expenses" heading, click on "Update or Start"
5. Click "Edit" next to your business name or if none click "Add Business
6. Scroll down to "Business Expenses" section
7. Click "Start" next to Other Common Business Expenses
8. Scroll down to Other Miscellaneous Expenses
9. You will enter the description of the bad debt and the amount on the next screen.

@dintymaroon