Can free tax USA handle deductions for bad debt?

Options

see question

Best Answer

  • MatthewD
    MatthewD FreeTaxUSA Team
    edited November 2023 Answer ✓
    Options

    cbrophy18November 3

    It's personal bad debt, but according to the IRS , they require additional information to be included with the return. What I'm really asking is whether a return with additional pdf attachments can be efileusing FreeTaxUSA.

    Hi Cbrophy18,

    Thanks for the additional information. Yes, you can attach a statement. When you enter the bad debt on the "Stocks or Investments Sold" page, make sure you select Other as the type and that you have a Summary. Then when you are ready to file your return in the final steps, an attachment page will give you a place to upload a PDF of the statement/summary.

Answers

  • MatthewD
    MatthewD FreeTaxUSA Team
    Options

    Hi Cbrophy18,

    Yes, but you will need to clarify. Is this personal bad debt, like a personal loan? Or is this bad debt relating to an income producing activity, like uncollectible accounts receivable?

    If it is personal bad debt (referred to by the IRS as nonbusiness bad debt), then you report it as a short-term capital loss on the Stock or Investments Sold page. Make sure you check the box that the basis was not reported to the IRS so it is reported on the Form 8949.

    If it is business bad debt, then you report it as a miscellaneous business expense on the Schedule C.

    Keep in mind that if you collect on the bad debt in the future, then that collection must be reported as income, either as a capital gain or business income.

    For additional details, see IRS Topic No. 453, Bad Debt Deduction.

  • cbrophy18
    cbrophy18 Member Newcomer
    Options

    It's personal bad debt, but according to the IRS , they require additional information to be included with the return. What I'm really asking is whether a return with additionaal pdf attachments can be e-filed using FreeTaxUSA.