What is a business bad debt and how do I claim it using TurboTax Live Assisted Business?

If your business provides goods or services on credit, you may encounter uncollectible amounts, which may qualify as a deductible bad debt for income tax. 

A bad debt occurs when you are owed money that cannot be collected. 

Business bad debts

Business bad debts are mainly the result of nonpayment of part or all of a credit sale to a customer, or also a loan to a vendor, client, employee, or distributor. If you use an accrual method of accounting, you normally report income as you earn it. 

A business bad debt is deductible if the amount is included in your gross income for the year the deduction is claimed, or was included in a prior year.

If however, you use the cash method of accounting, you normally report income when you receive payment. You can't take a bad debt deduction for amounts owed to you that you have never included in business income.

Nonbusiness bad debts

 All other bad debts are nonbusiness bad debts. Nonbusiness bad debts must be totally worthless to the deductible. Nothing can be deducted if any portion of a bad debt is recoverable. Nonbusiness bad debts are deductible as short-term capital losses on Form 8949 and Schedule C (Form 1040). 

For more information, see IRS Topic no. 453, Bad debt deduction.

How do I claim a business bad debt in TurboTax Live Assisted Business?

1. In Tax Home under Federal, select Deductions.
2. On the Your Deductions screen, under Business Expenses, beside Bad debts, select Start.
4. Select Deductions & Credits from Tax Home.
5. On the Your Deductions screen, under Business Expenses, beside Bad debts, select Start.
6. On the Enter Any Bad Debt Expense screen, enter the bad debt amount for 2025, and select Continue.
7. On the Your Deductions screen, under Business Expenses, beside Bad debts, the amount you entered will now appear.