Answers · Deductions, assets & depreciation
Business Bad Debts Explained
A bona fide business debt can be deductible under IRC §166 when worthless, subject to method and substantiation.
How it works
The rule, and what it turns on.
Cash-basis taxpayers generally cannot deduct unpaid customer invoices never included in income.
Example
Accrual business that recognized a $10,000 receivable may deduct it when demonstrably worthless, subject to rules.
Common mistakes
What we see go wrong, and what we do instead.
- Cash-basis deduction for never-recognized receivable.
- No evidence of worthlessness.
A better approach
- Document collection efforts and basis in the debt.
Authority
Where this comes from, so you can check it.
IRC §166; Treas. Reg. §1.166-1; IRS Publication 535 (historical reference where applicable) and current business tax guidance.
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
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