Bad debt deduction can be taken by proving only

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bad debt deduction can be taken by proving only partial worthlessness of a debt while full worthlessness of a debt must be proven in order to claim a nonbusiness bad debt deduction. Business Bad Debts Generally speaking, business bad debts are fully deductible by the taxpayer from gross income as an ordinary business expense in the year they become either partially or wholly worthless. (If the debt is not wholly worthless, only the amount not expected to be collected can be deducted.) Nonbusiness Bad Debts Non-business bad debts, in contrast, can be deducted for tax purposes only if the debt is completely worthless. Moreover, while a business bad debt loss is deductible as an ordinary expense, worthlessness of a nonbusiness bad debt is always treated as a short-term capital loss and is subject to the $3,000 limitation applicable to the deduction for capital losses. Expenses Incurred for the Production of Income ¶6301 Code Sec. 212—Production Of Income Or Protection Of Assets Production of income expenses are deductible if they are incurred: For the production or collection of income; (1) For the management, conservation, or maintenance of property held for the production of income; or (2) In connection with the determination, collection, or refund of any tax. (3) Expenses related to the production of income consist primarily of those expenses incurred in rental and investment activities as well as tax planning and compliance expenses. Like trade or business expenses, production of income expenses must be ordinary, necessary, and reasonable. Unlike trade or business expenses, expenses related to the production of income are deductible as miscellaneous itemized deductions with the exception of rents and royalty expenses which are deductible for AGI on Schedule E. Code Sec. 62(a)(4). ¶6315 Investment Expense Deductions Typical investment expenses which are deductible include safe deposit box rentals, rent and royalty expenses, investment counsel fees, subscriptions to investment-related journals, newspapers, and other publications, investment custodial fees, legal and accounting fees related to investments, and investment-related clerical fees and of fi ce rent. ¶6325 Tax Planning and Compliance Expenses All expenses incurred by individual taxpayers in connection with the determination, collection, or refund of any tax are also deductible as non-business expenses. Deductions in this area apply to tax planning expenses and tax compliance expenses of individuals and are properly classi fi ed as miscellaneous itemized deductions on the tax return. Businesses classify tax planning and compliance expenses as trade or business deductions.
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81 Instructor’s Manual © 2009 CCH. All Rights Reserved. Chapter 6 Deductions for Losses ¶6401 Code Sec. 165 Code Sec. 165 permits a deduction for any loss sustained that is not compensated for by insurance or otherwise (e.g., settlement of lawsuit). The deductions for losses of an individual taxpayer, however, are limited to: Losses incurred in a trade or business (deductible without limitation); (1)
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