bad debt write off

[ray smith]

How do I write off a bad debt in turbo tax.  I am looking for the process to enter the form. 

[SweetieJean]

Exactly what type of bad debt, and was it personal or business?

[patdrouhard]

How do I write off a bad debt?

[JohnW152]

@patdrouhard

Please clarify – are you asking where to claim a bad debt for a loan that you've made?   

If that's the question, please see the TurboTax Help article How to Report Non-Business Bad Debt on a Tax Return for entry guidance and more information.

If that’s not the question, please reply, and also state whether you’re using TurboTax Online or Desktop, and which version.

[patdrouhard]

yes, I am asking where and how to claim a bad debt for a loan that I made.  When I go to "How to Report Non-Business Bad Debt on a tax return," my Turbo Tax takes me through a stock sale process (Turbo Tax Desktop).  Also, how do I complete form 8949 on my desktop program (Home and Business edition).

[DawnC]

You were in the correct spot - Investment Income, Stocks, Mutual Funds, Bonds, Other.   When you go through that section and answer the questions, TurboTax automatically creates Form 8949 and includes it with your tax return.    Answer NO to the 'Did you receive a 1099-B for this sale'.    The cost (basis) is the amount of your worthless loan and the proceeds are what you have received on the loan, $0.    The description should have the name of the debtor/loan info.    Date Sold is the day it become worthless, must be in 2021 to file on this year's return.  

Be sure to mark the Holding Period as Box C - SHORT TERM, see image below

The debt must have been a bona fide loan—you gave the money with every expectation of being repaid. If you charged interest, and the borrower signed a promissory note, this provides a good indication that you expected to get your money back.   Otherwise, the IRS might consider the exchange to be a gift, particularly if the borrower is a friend or a family member. And gifts aren't tax deductible.

The debt must be worthless

The unpaid debt must be 100% worthless before you can deduct it. There must be no chance that the borrower can or will ever pay you back the amount of the loan. It is important to make a documented effort to collect your money with:

• Letters
• Invoices
• Phone calls

Generally, you can't take a deduction for a bad debt from your regular income, at least not right away.  It's a short-term capital loss, so you must first deduct it from any short-term capital gains you have before deducting it from long-term capital gains.  Finally, you can deduct up to $3,000 of any remaining balance from other income. If a balance still remains, you can carry it over to subsequent years.

The IRS also requires that you attach a bad-debt statement to your tax return, explaining the details of the loan you made.  This can prevent e-filing as attachments cannot be e-filed with your return.  

@patdrouhard

[frapp49]

student loans

[ThomasM125]

@frapp49 If you mean you had a student loan that was cancelled, it will be reported to you on a form 1099-C. You enter that in TurboTax in the Wages and Income Section, then Less Common Income, then Miscellaneous Income, 1099-A, 1099-C. Choose the Cancellation of debt (Form 1099-C) option and then follow the instructions.

[Duke2]

business.  Client has owed me for 2 yrs

[Duke2]

No its not a loan.  Client was invoiced for work I preformed and was never paid for.

[Duke2]

Turbo Tax and Quickbooks Online.  I want to write it off my taxes

[Duke2]

Business, A client owes me for unpaid invoices.

[AmyC]

If you are a cash basis taxpayer, you don' t. If you are accrual based taxpayer that claimed the income 2 years ago, then you would take it back off provided you can prove your collection efforts.

See: 

• I need to know how to write off work I did for people who never ...
• Topic No. 453 Bad Debt Deduction | Internal Revenue Service 

[Swishman4619]

TURBO TAX WILL NOT ALLOW ME TO ENTER THE BAD DEBT WRITE OFF ON A COMPANY THAT TOOK MY DEPOSIT TO INSTALL A FENCE THEN WENT BANKREUP!

[Swishman4619]

IT WAS PERSONAL