Bad Debts

Money your business is owed by another person or company that is considered "uncollectable," creating a bad debt. A debt becomes uncollectable when there is no longer any chance the amount owed will be paid. You must show tax agents and lenders that you have taken reasonable steps to collect the money, but were unable to do so. An example of a bad debt is if you loan money to a supplier or distributor for a business purpose, and they are unable to pay you back.