It depends if what you do is your business. It sounds like this is a money making effort, since it is not made to friends. Plase see this answer by Rick19744
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.
