Do you ever worry that people or businesses that owe you money might not pay off their debts when they come due?

Maybe you take some comfort from the idea that if the debtor doesn’t pay you back, at least you can salvage a tax write-off. But it’s not as simple as “have a debt go bad, get the deduction.”

You can deduct uncollectible debt as a business loss only if you made the loan for a reason related to your business. And you could find that business reason hard to prove.

If the uncollectible debt is not a business debt, you might qualify to deduct the debt as a personal bad debt—but here again special rules apply, and the tax treatment of a personal bad debt is not as favorable as what the law grants for a business bad debt.

But don’t worry. In this article, we’ll help you, in plain English, to understand and deduct both business and personal bad debts. ... Log in to view full article.