TAX: Deductions- Losses and Bad Debts Flashcards
Who can deduct bad debt?
Only accrual basis tax payer
For tax purposes, is the allowance method of bad debt allowed?
No, only the specific charge off method
Banks can use the reserve method for tax purposes
Where is a business bad debt deducted?
Deducted against ordinary income
What is a business bad debt?
Those who are in the business of loaning money
What is a nonbusiness bad debt?
Not related to any trade or business activity
A non business bad debt will always be treated as?
Short-term capital loss, and it has to be TOTALLY worthless
IF an asset becomes totally worthless, what are the tax implications?
It is assumed that the security was sold for zero dollars on the last day of the tax year.
This rule only applies to stock and bonds.
It has to be totally worthless for this to apply.
As of 2018, can NOLs be carried back?
No, but they can be carried forward INDEFINITELY
What is the future NOL limit of taxable income?
80% of taxable income
The NOL offset can only be allowed for what two types of losses?
Business losses and casualty losses. Any other type of loss that is creating a taxable loss cannot contribute to an NOL.
How do you compute the NOL?
The following adjustments are made to taxable loss:
+ Standard deduction or itemized deduction (except for casualty loss) and other nonbusiness deductions in excess of business income
+ Excess of nonbusiness capital losses over nonbusiness capital gains (limited to 3000)
+ NOL deduction from another year
What are the limits of NOL that can be deducted for an individual (single/married)
Single- $250,000
Married- $500,000
