Question

Compare the deduction for business bad debts vs. non-business bad debts. (US Tax)

Answer 1

bad debts are debts once created or acquired now do not have any chance of repayment . they are the debts proved worthless provided there is no reasonable explanation that they can be paid at any time. bad debts are loss for the business.

Business bad debts are those bad debts which are related to the business only that is the purpose for which a bad debt was created was related to business only.

for example - credit sales which cannot be recovered

Deduction for business bad debts - while calculation the taxable income , bad debts are deducted from gross income (fully or partly)

non-business bad debts, on the other hand, are all other bad debts that is the debts created for purpose other business related

for example - loan to a family member which can not be recovered

Deduction for non-business bad debts is only possible when these bad debts are totally worthless that is there is not a single chance of being recovered. in other words, partially worthless bad debts (non-business) cannot be deducted