What does the IRS allow as business bad debt?
The IRS distinguishes several different types of business bad debts. As of July 2010, the following types of debt may be considered bad debt, however, check IRS.gov for the most current information. – Loans to Clients and Suppliers. When you loan money to an outside party for business purposes, you expect to be repaid in a timely fashion. If your attempts to collect on any such loan are unsuccessful, the debt becomes worthless and your business takes a loss. – Debts to Political Parties. If a political party owes you money and attempts to collect on the money is unsuccessful, the debt becomes worthless and your business takes a loss. Restrictions may apply, so review the guidance at IRS.gov for details. – Debts of an Insolvent Partner. If your partnership breaks up and your former partner is unable to make payments on their debts, you can claim any part of your insolvent partners share of the debt as a bad debt deduction. – Sale of a Mortgaged Property. If you business sells a property
