Where do I report bad business debt in TurboTax home & business

[dentprousa]

I know this is reported on Schedule C, I just can't find the line when going through Home and Business to use.

[Tonita · Accepted solution]

To enter your bad debt expense:

1.       Log-on to your TurboTax Home & Business software.

2.       Click on "Take Me to My Return"

3.       Click on the "Business" tab

4.       Click on "Continue"

5.       Click on "I'll Choose What I Work on"

6.       Locate "Business Income & Expenses" heading, click on "Update or Start"

7.       Click "Edit" next to your business name or if none click "Add Business"

8.       Scroll down to "Business Expenses" section

9.       Click "Start" next to Other Miscellaneous Expenses

10.   You will enter the description of the bad debt and the amount on the next screen.

Let me know if you have further questions.

[Carl]

What kind of bad debt? It matters. For example, if your business provided services or product to a client and that client never paid you, then there's nothing to write off. You can't "write off" that which you didn't pay taxes on to start with.

Did your company loan money to another entity maybe, and you've given up trying to collect the payback?

[bclee]

True!  https://www.irs.gov/publications/p535#en_US_2018_publink1000154202  says

You can claim a business bad debt deduction only if the amount owed to you was previously included in gross income. This applies to amounts owed to you from all sources of taxable income, including sales, services, rents, and interest.  

from IRS Publ 535 ch.10

[IreneS]

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:

1. In TurboTax Home & Business, click on the Business tab  > Continue > I'll choose what I work on
2. On the Let's gather your [business] info screen, click the Start/Update button next to Business Income and Expenses.
3. On the screen, Let’s gather your business info, in the Business Income and Expenses section, click the Start/Update button. 
4. Continue to the Here's the business info we have so far screen.  Click on the Edit box next to the business. 
5. On the Your [business type] Business screen, in the Business Expenses section, click the Start/Update box next to Other Common Business Expenses
6. Click Start/Update box next to Other Miscellaneous Expenses.
7. Enter the information on the next screen.

[KathrynG3]

Personal bad debt is not tax deductible. 

Please click on the link below to further explain what changed with the new tax law, the Tax Cuts and Jobs Act of 2017 affecting years 2018-2025.

"The deduction for personal casualty or theft losses has been repealed in tax years 2018–2025, unless the loss occurred in a federally-declared disaster area.

Previously, uninsured losses exceeding $100 due to fire, theft, or natural disaster could be deducted if the total loss amount exceeded 10% of the AGI, regardless of location."

IRS Tax Topic 453 defines business bad debt and nonbusiness bad debt. Nonbusiness bad debt is not the same as personal bad debt from an unpaid credit card, for example.

[lashante02181974]

On TurboTax Online go to Deductions & Credits. Other deductions and look for Non business debt. You will enter the details of the debt. 

[dintymaroon]

Tonita, a clarification question.  What version of TT allows "I'll choose what I work on"?

Researching my situation, I'm not sure what IRS Form is involved. I am sole shareholder of a C-corp I opening in 2001.  I made a loan from shareholder (personally) to the corp.  There is no cashflow to pay the load.  I will liquidate in 2023 and take a loss using the 1244 rule.  But I want to deduct the bad loan from my personal taxes for 2022.  I meet all of the criteria to write off as ordinary income.  Not being a sub-S, LLC, sole proprietorship, etc; not sure how to proceed or if TT actually will block this approached. Any ideas?

[GeorgeM777]

It appears you are contemplating taking a business bad debt deduction.  TurboTax CD/download can handle a business bad debt deduction.  You are correct in that a business bad debt deduction can offset ordinary income such as W-2 income, interest, and dividend income. This type of debt can also result in creating a net operating loss on your individual return when you don’t have enough income to offset the business loss.

To deduct a business bad debt, the taxpayer must show that the debt was created or acquired in connection with a trade or business and must also establish the amount of the debt, the worthlessness of the debt, and the year that the debt became worthless.  Whether a debt was created--versus an equity investment--is a question of fact.   Factors that are relevant in determining whether a valid debt/loan was created are:

1. whether the promise to repay is evidenced by a note or other instrument that evidences indebtedness; 
2. whether interest was charged or paid; 
3. whether a fixed schedule for repayment and a fixed maturity date were established; 
4. whether collateral was given to secure payment; 
5. whether repayments were made; 
6. what the source of any payments was; 
7. whether the borrower had a reasonable prospect of repaying the loan and whether the lender had sufficient funds to advance the loan; and 
8. whether the parties conducted themselves as if the transaction was a loan. 

If you feel that you can claim a business bad debt, then in TurboTax CD/download, follow these steps:

1. Click on the "Business" tab
2. Click on "Continue"
3. Click on "I'll Choose What I Work on"
4. Locate "Business Income & Expenses" heading, click on "Update or Start"
5. Click "Edit" next to your business name or if none click "Add Business
6. Scroll down to "Business Expenses" section
7. Click "Start" next to Other Common Business Expenses
8. Scroll down to Other Miscellaneous Expenses
9. You will enter the description of the bad debt and the amount on the next screen.

@dintymaroon 

[dintymaroon]

George, you hit it out of the park! I downloaded 2022 Business/Home and working on it now.  I provided some constructive (non-numerical) feedback to a TT rep who called this morning. >> Using Online TT programs (premium), this was impossible and through several calls, no-on suggested I look into the download version. Then I discover this topic doing an on-line search.

For 2023, I am going to liquidate my old C-Corp and take a one-time 1244 capital loss write-off.  Will the Online version work for this next year?

Thank you again, Dinty

[GeorgeM777]

At this point, it's unclear what additional options will be available next year in TurboTax online.  Currently, in TurboTax Premium online, references to business bad debt and the reporting of same on a tax return, require that the business owner use the accrual method of accounting.    This does not seem to mirror your specific business situation.  Therefore, perhaps it best to plan on using TurboTax Home & Business next year particularly if you have to make manual entries which require that you move into Forms mode.  

However, you can always start in TurboTax online and if that application does not suit your business needs, you can export what you have entered into TurboTax Home & Business without having to re-enter all of your entries.  Below is a link to a recent TurboTax article that explains the process of transferring to TurboTax CD/download from TurboTax online.  

How do I switch from TurboTax online to TurboTax CD/download

@dintymaroon