Occurs when someone owes you money that you cannot collect. The amount owed may be deductible when calculating your tax for the year the debt becomes worthless. A debt must be genuine to be deductible as a loss. A debt is genuine if it arises from a debtor-creditor relationship based on a valid and enforceable obligation to repay a fixed or determinable sum of money. There are two kinds of bad debts: business bad debts and nonbusiness bad debts.
Basis is the amount of your investment in a property for tax purposes. Basis of property you buy is usually its cost; however, basis in some assets cannot be determined by cost. If you did not acquire property through purchase (such as through gift, inheritance, trade, or exchange), basis may be determined as the fair market value or as adjusted basis. The basis of property is used to calculate your gain or loss on the sale, exchange, or other disposition of your property. It is also used to calculate your deductions for depreciation, amortization, depletion, and casualty losses. If your property is used for both business and personal purposes, the basis must be allocated based on the use.
A below-market-rate loan is a loan on which you charge no interest or on which you charge interest at a rate below the applicable federal rate. You may have to include in income the interest that the Internal Revenue Service determines you should have charged.
If you are blind on the last day of the year and not itemizing deductions, you are entitled to a higher standard deduction. To qualify for this benefit, you must be totally or partly blind. If you are partly blind, you must obtain a certified statement from an eye doctor or registered optometrist stating that you: (1) cannot see better than 20/200 in the better eye with glasses or contact lenses, or (2) have a field of vision that is not more than 20 degrees.
A certificate of debt representing an obligation by a corporation or government guaranteeing to pay back money borrowed from the bondholder on a determined date, together with any accrued interest.
An additional amount (30% or 50%) that taxpayers may deduct in the first year of depreciation for certain depreciable property. The additional 30% allowance is for qualified property placed in service after September 10, 2001.You may be able to claim the 50% depreciation allowance for property acquired after May 5, 2003. This depreciation allowance is in addition to the amount of depreciation otherwise allowable in the first year. Bonus depreciation is no longer available after December 31, 2004.
Burden of Proof
The responsibility of proving a disputed item or allegation. If you take an Internal Revenue Service (IRS) case to court, the IRS will have the burden of proving certain facts as long as you kept adequate records showing your tax liability, cooperated with the IRS, and meet certain other conditions. Otherwise, you have the burden of proving your tax return is accurate.
Business Bad Debt
A business bad debt is generally an unpaid obligation that comes from operating your trade or business and that is deductible as a business loss. A business bad debt is a loss from the worthlessness of a debt that was either: (1) created or acquired in your trade or business, or (2) closely related to your trade or business when it became partly or totally worthless.
Business expenses are costs you do not have to capitalize or include in the cost of goods sold. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary. Examples of business expenses are depreciation, vehicle expenses, interest, insurance, real estate taxes, and advertising.
Property (such as an office, rental house, or automobile) that is used in your trade or business or for the production of income.