Most small businesses run on a cash accounting basis (rather than an accrual basis). If this is the case with your business, you will not have included the income from that debt, so there is no bad debt to report.
If your business is on an accrual basis, then you can use the steps outlined below to report the bad debt.
As Carl mentioned, if you loan money to a client, supplier, employee, or distributor for a business reason and you’re unable to collect the loan after attempting to do so, you have a business bad debt, which can be entered as an expense of the business.
To enter the bad debt in TurboTax, please follow these steps:
- In TurboTax Home & Business, click on the Business tab > Continue > I'll choose what I work on
- On the Let's gather your [business] info screen, click the Start/Update button next to Business Income and Expenses.
- On the screen, Let’s gather your business info, in the Business Income and Expenses section, click the Start/Update button.
- Continue to the Here's the business info we have so far screen. Click on the Edit box next to the business.
- On the Your [business type] Business screen, in the Business Expenses section, click the Start/Update box next to Other Common Business Expenses
- Click Start/Update box next to Other Miscellaneous Expenses.
- Enter the information on the next screen.
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