bad debt write off

[AmyC]

From Topic No. 453, Bad Debt Deduction:

If someone owes you money that you can't collect, you may have a bad debt. For a discussion of what constitutes a valid debt, refer to Publication 550, Investment Income and Expenses and Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C). Generally, to deduct a bad debt, you must have previously included the amount in your income or loaned out your cash. If you're a cash method taxpayer (most individuals are), you generally can't take a bad debt deduction for unpaid salaries, wages, rents, fees, interests, dividends, and similar items of taxable income. For a bad debt, you must show that at the time of the transaction you intended to make a loan and not a gift.

Paying someone to install a fence is not a loan. Here are some helpful tips of what to do when a contractor doesn't finish the job.

@Swishman4619 

[jayjay3cmu]

Where do I claim loss for unpaid consulting fees?

[jayjay3cmu]

My customer did not pay me in full on my 1099 NEC. I have no expectation of payment and would like to claim the loss.

[jayjay3cmu]

I am using Home and Business desktop version and wish to claim loss on uncollectable consulting fees which were not paid on my 1099 NEC. Thanks!

[LeticiaF1]

Per IRS Topic no. 453 regarding Bad debt deduction, if you're a cash method taxpayer (most individuals are), you generally can't take a bad debt deduction for unpaid fees. If you received a Form 1099-NEC showing a larger amount than what you were paid, you could contact the company or individual that issued it and have them correct it.  

@jayjay3cmu 

[jimbolight]

made personal loan to business an now is a write off where to enter in turbo tax??

[Vanessa A]

If you made a personal loan that is now completely worthless and you made all attempts to collect, then you would write it off as a non business bad debt.

To do so select the following:

1. Deductions and Credits
2. Non Business Bad Debt under Other Deductions and Credits
3. Walk through the steps and answer the questions on the debt.

How to Report Non-Business Bad Debt on a Tax Return

[user17721435797]

I have exactly this situation (loan given to organization that went bust). But TurboTax seems to insist that I must have a 1099-B, which I do not. If I try to finesse that by saying I have a 1099-B from "None", I'm subsequently asked for a Type of sale, which is limited to choices that don't apply. I can finesse this again by saying the type is a Bond, but at this point I fear that my tax return will be out of sync with the reality of my situation. Am I missing some technique for reporting this situation? Thx

[RogerD1]

Based on your description, it sounds like you have a Bond from an organization that went bankrupt.  If their bankruptcy filing has been completed and you received nothing for your investment with them, you would report this as a worthless security using a sale date of 12/31/2025.  If bankruptcy proceedings are still ongoing, there exists a possibility that you could receive payments from them for the worthless bond, in which case you should not file this as a worthless security.  Be sure to keep records of bankruptcy filings, news articles, etc. related to the company as proof that you will not receive anything.

In TurboTax Premier Online, follow these steps.       

1. Down the left side of the screen, click Federal.
2. Down the left side of the screen, click Wages & Income.
3. Click the down arrow to the right of Investments and Savings.
4. Click to the right of Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B).
5. Click Add investments.
6. On the Let's import your tax info screen, select Enter a different way.
7. On the OK, let's start with one investment type screen, select Stocks, Bonds, Mutual Funds, then Continue.
8. At the screen Which bank or brokerage, enter the information.  Click Continue.
9. Do these sales include any employee stock, enter No.
10. Do you have more than three sales, enter No.
11. Do these sales include any other types of investments, enter No.
12. Did you buy every investment listed, enter Yes.  Continue.
13. On the screen Now, choose how to enter your sales, select One by one.  Select Continue.
14. At the screen Look for your sales on your 1099-B, select Continue.
15. You will now be able to enter $0 total proceeds (sales) and your cost basis, along with the sales category (likely long term basis (over 1 year holding period) not reported to IRS).  Use 12/31/2025 as the sale date.  You will need to have the date of purchase entered also.  In the description, use the word Worthless.  Select Continue.
16. At the screen Review your sales, select Add another sale as necessary.
17. When completed, close the record and click Continue.