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Do You Have Bad Debt?
Bad debts are considered to be
those debts that are unlikely to be repaid. There are two types of bad
debts in case of asking for deductions in the tax returns:
A
business bad debt Non
- business bad debt
A business bad debt comes from a trade or a business. It can be deductible
only when it is included in the business income.
All other bad debts are non business. Example of it can be a personal loan
made to someone. Non business bad debts are worthless to be deductible unless
reasonable steps have been taken to collect the debt, like going to the court
and sending demand letters. A debt can only become worthless when there is
no further chance of the amount to be paid back. A debtor who has declared
bankruptcy proves a loan to be worthless.
Some examples of bad debt
1. That debt accumulated on items which do not increase in value over time.
2. The interest is charged over time in the debt that increases the cost of
the product two to three times the original value.
3. Those debts which charge compound interest are examples of bad debt.
4. The bad debts decrease the value of goods and services over a period of
time.
Some examples of good debts
1. The debts which are gathered on goods and services that increase in value
over a period of time are examples of good debt.
2. Those debts which charge simple interest and not compound interest are examples
of good debt.
3. Some examples of good
debt are home loans and school loans.
4. If it is not difficult for the employer to acquire the payments which are
bearable, they are good debts because most homes increase in value over a period
of time.
5. School loans are good debts because they allow acquiring a job The income
increases Simple interest is being charged.
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NEWSLETTER 
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business bad debt
