Generally you can deduct uncollectible loans as bad debts, see below-
There are two kinds of bad debts – business and nonbusiness.
Business Bad Debts - Generally, a business bad debt is a loss from the worthlessness of a debt that was either created or acquired in a trade or business or closely related to your trade or business when it became partly to totally worthless. A debt is closely related to your trade or business if your primary motive for incurring the debt is business related. You can deduct it on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) or on your applicable business income tax return.
The following are examples of business bad debts (if previously included in income):
- Loans to clients, suppliers, distributors, and employees
- Credit sales to customers, or
- Business loan guarantees
A business deducts its bad debts, in full or in part, from gross income when figuring its taxable income. For more information on methods of claiming business bad debts, refer to Publication 535, Business Expenses.
Nonbusiness Bad Debts - All other bad debts are nonbusiness. Nonbusiness bad debts must be totally worthless to be deductible. You can't deduct a partially worthless nonbusiness bad debt.
A debt becomes worthless when the surrounding facts and circumstances indicate there's no reasonable expectation that the debt will be repaid. To show that a debt is worthless, you must establish that you've taken reasonable steps to collect the debt. It's not necessary to go to court if you can show that a judgment from the court would be uncollectible. You may take the deduction only in the year the debt becomes worthless. You don't have to wait until a debt is due to determine that it's worthless.
Report a nonbusiness bad debt as a short-term capital loss on Form 8949, Sales and Other Dispositions of Capital Assets, Part 1, line 1. Enter the name of the debtor and "bad debt statement attached" in column (a). Enter your basis in the bad debt in column (e) and enter zero in column (d). Use a separate line for each bad debt. It's subject to the capital loss limitations. A nonbusiness bad debt deduction requires a separate detailed statement attached to your return. The statement must contain: a description of the debt, including the amount and the date it became due; the name of the debtor, and any business or family relationship between you and the debtor; the efforts you made to collect the debt; and why you decided the debt was worthless.
Volunteer work at a chartable organization-
I'm sure you know that the property donations you make to a charity are deductible. But I bet you didn't realize that you can also claim a tax deduction for some out-of-the-pocket expenses you occur when volunteering your time.
- The value of your time is never deductible as a charitable contribution.
- However, if the charity requires you to wear a special uniform when volunteering or you have to pay to park your car in a garage, these types of expenses can be applied to your charitable deduction for the year.
There are other things you can deduct as well. When you use your personal vehicle to get to the organization you are volunteering for, you can deduct the cost of gasoline.
- Calculating the precise cost may be more trouble than it is worth and for this reason the IRS allows you to calculate the expense using a standard mileage rate.
- Just multiply the miles you drive by the rate and that is the gasoline cost you can deduct as a charitable contribution.
Suppose you are a construction worker and, in addition to volunteering your time with Habitat for Humanity, you bring some roofing materials with you. You can also deduct the cost of these materials as a charitable contribution in addition to your vehicle expenses.
For more tax tips and guidance, visit TurboTax.com.
