Introduction

If someone owes you money you cannot collect, you have a bad debt. There are two kinds of bad debts--business bad debts and nonbusiness bad debts.

Generally, a business bad debt is one that comes from operating your trade or business. You can deduct business bad debts as an expense on your business tax return.

All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Schedule D (Form 1040). For more information on nonbusiness bad debts, see Publication 550.

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