| A loan you give may sometimes go bad, which means | | | | from the income of the business itself. Since the loans |
| that there is no chance for its recovery. If the income | | | | have come out of taxed income, they qualify for tax |
| that was loaned out as debt was included in an earlier | | | | relief when they go bad. It is deducted from the gross |
| return, you are eligible for tax relief by deducting the | | | | income of the business. |
| bad debt from your income in the current year's return. | | | | The other category is non-business bad debt. It is |
| If you are reporting your income on a cash basis, you | | | | important to remember that deductions can be taken |
| may not have included the income receivable from | | | | only if the entire bad debt to a person goes bad. Tax |
| somebody as an income. In such a situation, naturally, | | | | relief can not be claimed in parts. It is also necessary |
| no claim of can be made. | | | | to establish the fact that steps have been taken to |
| Bad debts fall into two categories. The first category is | | | | realize them. The deduction of non-business bad debt |
| the business bad debt, which, as the name implies, | | | | is, however, subject to some limitations as it is treated |
| relates to your business. Advancing a loan to others is | | | | as short-term capital loss. |
| a common business transaction. Sometimes loans are | | | | Remember, when your debt goes bad, your tax liability |
| advanced to customers or other businesses as part | | | | also goes down. That should be of some consolation |
| of standard business practice for the benefit of | | | | to you! |
| expanding the business. Such loans are normally made | | | | |