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Form 1040ez 2011

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Form 1040ez 2011

Form 1040ez 2011 10. Form 1040ez 2011   Business Bad Debts Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Definition of Business Bad DebtAccrual method. Form 1040ez 2011 Cash method. Form 1040ez 2011 Debt acquired from a decedent. Form 1040ez 2011 Liquidation. Form 1040ez 2011 Types of Business Bad Debts When a Debt Becomes Worthless How To Claim a Business Bad DebtSpecific Charge-Off Method Nonaccrual-Experience Method Recovery of a Bad DebtNet operating loss (NOL) carryover. Form 1040ez 2011 Introduction You have a bad debt if you cannot collect money owed to you. Form 1040ez 2011 A bad debt is either a business bad debt or a nonbusiness bad debt. Form 1040ez 2011 This chapter discusses only business bad debts. Form 1040ez 2011 Generally, a business bad debt is one that comes from operating your trade or business. Form 1040ez 2011 You can deduct business bad debts on Schedule C (Form 1040) or your applicable business income tax return. Form 1040ez 2011 All other bad debts are nonbusiness bad debts and are deductible only as short-term capital losses. Form 1040ez 2011 For more information on nonbusiness bad debts, see Publication 550. Form 1040ez 2011 Topics - This chapter discusses: Definition of business bad debt When a debt becomes worthless How to claim a business bad debt Recovery of a bad debt Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 556 Examination of Returns, Appeal Rights, and Claims for Refund Form (and Instructions) Schedule C (Form 1040) Profit or Loss From Business 1040X Amended U. Form 1040ez 2011 S. Form 1040ez 2011 Individual Income Tax Return 1045 Application for Tentative Refund 1139 Corporation Application for Tentative Refund 3115 Application for Change in Accounting Method See chapter 12 for information about getting publications and forms. Form 1040ez 2011 Definition of Business Bad Debt A business bad debt is a loss from the worthlessness of a debt that was either: Created or acquired in your trade or business, or Closely related to your trade or business when it became partly or totally worthless. Form 1040ez 2011 A debt is closely related to your trade or business if your primary motive for incurring the debt is business related. Form 1040ez 2011 Bad debts of a corporation (other than an S corporation) are always business bad debts. Form 1040ez 2011 Credit sales. Form 1040ez 2011   Business bad debts are mainly the result of credit sales to customers. Form 1040ez 2011 Goods that have been sold, but not yet paid for, and services that have been performed, but not yet paid for, are recorded in your books as either accounts receivable or notes receivable. Form 1040ez 2011 After a reasonable period of time, if you have tried to collect the amount due, but are unable to do so, the uncollectible part becomes a business bad debt. Form 1040ez 2011   Accounts or notes receivable valued at fair market value (FMV) when received are deductible only at that value, even though the FMV may be less than the face value. Form 1040ez 2011 If you purchased an account receivable for less than its face value, and the receivable subsequently becomes worthless, the most you are allowed to deduct is the amount you paid to acquire it. Form 1040ez 2011    You can claim a business bad debt deduction only if the amount owed to you was previously included in gross income. Form 1040ez 2011 This applies to amounts owed to you from all sources of taxable income, including sales, services, rents, and interest. Form 1040ez 2011 Accrual method. Form 1040ez 2011   If you use the accrual method of accounting, you generally report income as you earn it. Form 1040ez 2011 You can only claim a bad debt deduction for an uncollectible receivable if you have previously included the uncollectible amount in income. Form 1040ez 2011   If you qualify, you can use the nonaccrual-experience method of accounting discussed later. Form 1040ez 2011 Under this method, you do not have to accrue income that, based on your experience, you do not expect to collect. Form 1040ez 2011 Cash method. Form 1040ez 2011   If you use the cash method of accounting, you generally report income when you receive payment. Form 1040ez 2011 You cannot claim a bad debt deduction for amounts owed to you because you never included those amounts in income. Form 1040ez 2011 For example, a cash basis architect cannot claim a bad debt deduction if a client fails to pay the bill because the architect's fee was never included in income. Form 1040ez 2011 Debts from a former business. Form 1040ez 2011   If you sell your business but retain its receivables, these debts are business debts because they arose out of your trade or business. Form 1040ez 2011 If any of these receivables subsequently become worthless, the loss is still a business bad debt. Form 1040ez 2011 Debt acquired from a decedent. Form 1040ez 2011   The character of a loss from debts of a business acquired from a decedent is determined in the same way as debts acquired on the purchase of a business. Form 1040ez 2011 The executor of the decedent's estate treats any loss from the debts as a business bad debt if the debts were closely related to the decedent's trade or business when they became worthless. Form 1040ez 2011 Otherwise, a loss from these debts becomes a nonbusiness bad debt for the decedent's estate. Form 1040ez 2011 Liquidation. Form 1040ez 2011   If you liquidate your business and some of the accounts receivable that you retain become worthless, they become business bad debts. Form 1040ez 2011 Types of Business Bad Debts Business bad debts may result from the following. Form 1040ez 2011 Loans to clients and suppliers. Form 1040ez 2011   If you loan money to a client, supplier, employee, or distributor for a business reason and you are unable to collect the loan after attempting to do so, you have a business bad debt. Form 1040ez 2011 Debts owed by political parties. Form 1040ez 2011   If a political party (or other organization that accepts contributions or spends money to influence elections) owes you money and the debt becomes worthless, you can claim a bad debt deduction only if all of the following requirements are met. Form 1040ez 2011 You use the accrual method of accounting. Form 1040ez 2011 The debt arose from the sale of goods or services in the ordinary course of your trade or business. Form 1040ez 2011 More than 30% of your receivables accrued in the year of the sale were from sales to political parties. Form 1040ez 2011 You made substantial and continuing efforts to collect on the debt. Form 1040ez 2011 Loan or capital contribution. Form 1040ez 2011   You cannot claim a bad debt deduction for a loan you made to a corporation if, based on the facts and circumstances, the loan is actually a contribution to capital. Form 1040ez 2011 Debts of an insolvent partner. Form 1040ez 2011   If your business partnership breaks up and one of your former partners becomes insolvent, you may have to pay more than your pro rata share of the partnership's debts. Form 1040ez 2011 If you pay any part of the insolvent partner's share of the debts, you can claim a bad debt deduction for the amount you paid that is attributable to the insolvent partner's share. Form 1040ez 2011 Business loan guarantee. Form 1040ez 2011   If you guarantee a debt that subsequently becomes worthless, the debt can qualify as a business bad debt if all the following requirements are met. Form 1040ez 2011 You made the guarantee in the course of your trade or business. Form 1040ez 2011 You have a legal duty to pay the debt. Form 1040ez 2011 You made the guarantee before the debt became worthless. Form 1040ez 2011 You meet this requirement if you reasonably expected you would not have to pay the debt without full reimbursement from the borrower. Form 1040ez 2011 You received reasonable consideration for making the guarantee. Form 1040ez 2011 You meet this requirement if you made the guarantee in accord with normal business practice or for a good faith business purpose. Form 1040ez 2011 Example. Form 1040ez 2011 Jane Zayne owns the Zayne Dress Company. Form 1040ez 2011 She guaranteed payment of a $20,000 note for Elegant Fashions, a dress outlet. Form 1040ez 2011 Elegant Fashions is one of Zayne's largest clients. Form 1040ez 2011 Elegant Fashions later defaulted on the loan. Form 1040ez 2011 As a result, Ms. Form 1040ez 2011 Zayne paid the remaining balance of the loan in full to the bank. Form 1040ez 2011 She can claim a business bad debt deduction only for the amount she paid, since her guarantee was made in the course of her trade or business for a good faith business purpose. Form 1040ez 2011 She was motivated by the desire to retain one of her better clients and keep a sales outlet. Form 1040ez 2011 Deductible in the year paid. Form 1040ez 2011   If you make a payment on a loan you guaranteed, you can deduct it in the year paid, unless you have rights against the borrower. Form 1040ez 2011 Rights against a borrower. Form 1040ez 2011   When you make payment on a loan you guaranteed, you may have the right to take the place of the lender. Form 1040ez 2011 The debt is then owed to you. Form 1040ez 2011 If you have this right, or some other right to demand payment from the borrower, you cannot claim a bad debt deduction until these rights become partly or totally worthless. Form 1040ez 2011 Joint debtor. Form 1040ez 2011   If two or more debtors jointly owe you money, your inability to collect from one does not enable you to deduct a proportionate amount as a bad debt. Form 1040ez 2011 Sale of mortgaged property. Form 1040ez 2011   If mortgaged or pledged property is sold for less than the debt, the unpaid, uncollectible balance of the debt is a bad debt. Form 1040ez 2011 When a Debt Becomes Worthless A debt becomes worthless when there is no longer any chance the amount owed will be paid. Form 1040ez 2011 This may occur when the debt is due or prior to that date. Form 1040ez 2011 To demonstrate worthlessness, you must only show that you have taken reasonable steps to collect the debt but were unable to do so. Form 1040ez 2011 It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. Form 1040ez 2011 Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. Form 1040ez 2011 Property received for debt. Form 1040ez 2011   If you receive property in partial settlement of a debt, reduce the debt by the property's FMV, which becomes the property's basis. Form 1040ez 2011 You can deduct the remaining debt as a bad debt if and when it becomes worthless. Form 1040ez 2011   If you later sell the property for more than its basis, any gain on the sale is due to the appreciation of the property. Form 1040ez 2011 It is not a recovery of a bad debt. Form 1040ez 2011 For information on the sale of an asset, see Publication 544. Form 1040ez 2011 How To Claim a Business Bad Debt There are two methods to claim a business bad debt. Form 1040ez 2011 The specific charge-off method. Form 1040ez 2011 The nonaccrual-experience method. Form 1040ez 2011 Generally, you must use the specific charge-off method. Form 1040ez 2011 However, you may use the nonaccrual-experience method if you meet the requirements discussed later under Nonaccrual-Experience Method . Form 1040ez 2011 Specific Charge-Off Method If you use the specific charge-off method, you can deduct specific business bad debts that become either partly or totally worthless during the tax year. Form 1040ez 2011 However, with respect to partly worthless bad debts, your deduction is limited to the amount you charged off on your books during the year. Form 1040ez 2011 Partly worthless debts. Form 1040ez 2011   You can deduct specific bad debts that become partly uncollectible during the tax year. Form 1040ez 2011 Your tax deduction is limited to the amount you charge off on your books during the year. Form 1040ez 2011 You do not have to charge off and deduct your partly worthless debts annually. Form 1040ez 2011 You can delay the charge off until a later year. Form 1040ez 2011 However, you cannot deduct any part of a debt after the year it becomes totally worthless. Form 1040ez 2011 Significantly modified debt. Form 1040ez 2011   An exception to the charge-off rule exists for debt which has been significantly modified and on which the holder recognized gain. Form 1040ez 2011 For more information, see Regulations section 1. Form 1040ez 2011 166-3(a)(3). Form 1040ez 2011 Deduction disallowed. Form 1040ez 2011   Generally, you can claim a partial bad debt deduction only in the year you make the charge-off on your books. Form 1040ez 2011 If, under audit, the IRS does not allow your deduction and the debt becomes partly worthless in a later tax year, you can deduct the amount you charged off in that year plus the disallowed amount charged off in the earlier year. Form 1040ez 2011 The charge-off in the earlier year, unless reversed on your books, fulfills the charge-off requirement for the later year. Form 1040ez 2011 Totally worthless debts. Form 1040ez 2011   If a debt becomes totally worthless in the current tax year, you can deduct the entire amount, less any amount deducted in an earlier tax year when the debt was only partly worthless. Form 1040ez 2011   You do not have to make an actual charge-off on your books to claim a bad debt deduction for a totally worthless debt. Form 1040ez 2011 However, you may want to do so. Form 1040ez 2011 If you do not and the IRS later rules the debt is only partly worthless, you will not be allowed a deduction for the debt in that tax year because a deduction of a partly worthless bad debt is limited to the amount actually charged off. Form 1040ez 2011 See Partly worthless debts, earlier. Form 1040ez 2011 Filing a claim for refund. Form 1040ez 2011   If you did not deduct a bad debt on your original return for the year it became worthless, you can file a claim for a credit or refund. Form 1040ez 2011 If the bad debt was totally worthless, you must file the claim by the later of the following dates. Form 1040ez 2011 7 years from the date your original return was due (not including extensions). Form 1040ez 2011 2 years from the date you paid the tax. Form 1040ez 2011   If the claim is for a partly worthless bad debt, you must file the claim by the later of the following dates. Form 1040ez 2011 3 years from the date you filed your original return. Form 1040ez 2011 2 years from the date you paid the tax. Form 1040ez 2011 You may have longer to file the claim if you were unable to manage your financial affairs due to a physical or mental impairment. Form 1040ez 2011 Such an impairment requires proof of existence. Form 1040ez 2011   For details and more information about filing a claim, see Publication 556. Form 1040ez 2011 Use one of the following forms to file a claim. Form 1040ez 2011 For more information, see the instructions for the applicable form. Form 1040ez 2011 Table 10-1. Form 1040ez 2011 Forms Used To File a Claim IF you filed as a. Form 1040ez 2011 . Form 1040ez 2011 . Form 1040ez 2011 THEN file. Form 1040ez 2011 . Form 1040ez 2011 . Form 1040ez 2011 Sole proprietor or farmer Form 1040X Corporation Form 1120X S corporation Form 1120S and check box H(4) Partnership Form 1065X if filing on paper or  Form 1065 and check box G(5) if filing electronically Nonaccrual-Experience Method If you use an accrual method of accounting and qualify under the rules explained in this section, you can use the nonaccrual-experience method for bad debts. Form 1040ez 2011 Under this method, you do not accrue service related income you expect to be uncollectible. Form 1040ez 2011 Because the expected uncollectible amounts are not included in income, these amounts are not later deducted from income. Form 1040ez 2011 Generally, you can use the nonaccrual-experience method for accounts receivable for services you performed only if: The services are provided in the fields of accounting, actuarial science, architecture, consulting, engineering, health, law, or the performing arts, or You meet the $5 million gross receipts test for all prior years. Form 1040ez 2011 Service related income. Form 1040ez 2011   You can use the nonaccrual-experience method only for amounts earned by performing services. Form 1040ez 2011 You cannot use this method for amounts owed to you from activities such as lending money, selling goods, or acquiring receivables or other rights to receive payment. Form 1040ez 2011 Gross receipts test. Form 1040ez 2011   To find out if you meet the $5 million gross receipts test for all prior years, you must figure the average annual gross receipts for each prior year. Form 1040ez 2011 If your average annual gross receipts for any year exceeds $5 million, you cannot use the non-accural experience method. Form 1040ez 2011   The average annual gross receipts for any year is the average of gross receipts from the year in question and the 2 previous years. Form 1040ez 2011 For example, if you were figuring the average annual gross receipts for 2013, you would average your gross receipts for 2011, 2012, and 2013. Form 1040ez 2011 Interest or penalty charged. Form 1040ez 2011   Generally, you cannot use the nonaccrual-experience method for amounts due on which you charge interest or a late payment penalty. Form 1040ez 2011 However, do not treat a discount offered for early payment as the charging of interest or a penalty if both the following apply. Form 1040ez 2011 You otherwise accrue the full amount due as gross income at the time you provide the services. Form 1040ez 2011 You treat the discount allowed for early payment as an adjustment to gross income in the year of payment. Form 1040ez 2011 Change in accounting method. Form 1040ez 2011   Generally, you must obtain consent to change to a nonaccrual-experience method (other than one of the safe harbor methods) or to change from one method to another. Form 1040ez 2011 See Form 3115 and the Instructions for Form 3115 for more information. Form 1040ez 2011 Recovery of a Bad Debt If you claim a deduction for a bad debt on your income tax return and later recover (collect) all or part of it, you may have to include all or part of the recovery in gross income. Form 1040ez 2011 The amount you include is limited to the amount you actually deducted. Form 1040ez 2011 However, you can exclude the amount deducted that did not reduce your tax. Form 1040ez 2011 Report the recovery as “Other income” on the appropriate business form or schedule. Form 1040ez 2011 See Recoveries in Publication 525 for more information. Form 1040ez 2011 Net operating loss (NOL) carryover. Form 1040ez 2011   If a bad debt deduction increases an NOL carryover that has not expired before the beginning of the tax year in which the recovery takes place, you treat the deduction as having reduced your tax. Form 1040ez 2011 A bad debt deduction that contributes to a NOL helps lower taxes in the year to which you carry the NOL. Form 1040ez 2011 For more information about NOLs, see Publication 536. Form 1040ez 2011 Also, see the Instructions for Form 1045, and the Instructions for Form 1139. Form 1040ez 2011 Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Wisconsin Department of Agriculture, Trade and Consumer Protection

Website: Wisconsin Department of Agriculture, Trade and Consumer Protection

Address: Wisconsin Department of Agriculture, Trade and Consumer Protection
Bureau of Consumer Protection
PO Box 8911
2811 Agriculture Dr.
Madison, WI 53708-8911

Phone Number: 608-224-4953

Toll-free: 1-800-422-7128 (WI)

TTY: 608-224-5058

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Department of Financial Institutions

Website: Department of Financial Institutions

Address: Department of Financial Institutions
Bureau of Consumer Affairs
PO Box 8041
Madison, WI 53708-8041

Phone Number: 608-264-7969

TTY: 608-266-8818

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Office of the Commissioner of Insurance

Website: Office of the Commissioner of Insurance

Address: Office of the Commissioner of Insurance
125 S. Webster St.
Madison, WI 53703-3474

Phone Number: 608-266-3585

Toll-free: 1-800-236-8517 (WI)

TTY: 711 and ask for 608-266-3586

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Department of Financial Institutions

Website: Department of Financial Institutions

Address: Department of Financial Institutions
Division of Securities
PO Box 1768
Madison, WI 53701-1768

Phone Number: 608-266-1064

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Public Service Commission

Website: Public Service Commission

Address: Public Service Commission
Consumer Affairs Unit
PO Box 7854
Madison, WI 53707-7854

Phone Number: 608-266-2001

Toll-free: 1-800-225-7729

TTY: 608-267-1479

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The Form 1040ez 2011

Form 1040ez 2011 15. Form 1040ez 2011   Examination and Appeal Procedures If your excise tax return is examined and you disagree with the findings, you can get information about audit and appeal procedures from Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund. Form 1040ez 2011 An unagreed case involving an excise tax covered in this publication differs from other tax cases in that you can only contest it in court after payment of the tax by filing suit for a refund in the United States District Court or the United States Court of Federal Claims. Form 1040ez 2011 Prev  Up  Next   Home   More Online Publications