How To Write Off Debt
Need to know how to write off debt on your taxes? Everyone who offers services expects to be paid what they are owed. Sometimes, however, this doesn't happen. If you own a business and someone owes you money that they have not paid, you can write off that loss as a bad debt on your business taxes. This article will provide more information on how to do that.
- Make attempts to collect the debt, and be sure to keep records of them. Attempts to collect the debt include making phone calls and possibly using a collection agency that will provide documentation of attempts to collect the debt. As a last result, try sending certified letters to collect the debt. If this last option is used, be sure to request a return receipt so you have proof that the person that owes you money received the certified letter.
- If attempts to collect the debt have failed, write off the debt as a loss on your taxes. This would be claimed on either Schedule C for a sole proprietorship, or Form 1120 for a corporation. When using Schedule C, losses are reported on Line 31. Be sure to read the instructions for filing losses, as the amount that can be claimed may be limited. When using Form 1120, losses are reported on Line 29a. Once again, be sure to read the instructions for this form, as special rules may apply to your situation.
No one likes not receiving money they're entitled to, but it's always good to know how to write off debt. Always remember that bad debts can be written off on your business taxes, so it's not the end of the world.