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One way or another, bad debt is going to get you in some way. Wether a customer buy’s something on credit and then doesn’t make good on the payments, or a vendor lends a business inventory on credit and the company folds anyway in the long run, it happens.

However, that bad debt doesn’t have to stay with you causing you nightmares. If you can show that this bad debt is a direct result of operating your business, and you can also show that you already claimed it as income, you can tax write this debt off at the end of the year.

Even if you haven’t showed this debt as income and can not write it off, you can however deduct the cost for those goods in question. Just make sure that on your tax form that you include the cost in the total for “cost of goods” as suggested on Entrepreneur.com.

Not every bad debt can be turned around, though: If you are in a service business and don’t have much in the way of cost of goods, you’re out of luck here. Also, unfortunately, only the cost of goods is deductible, not the full retail price you charged the deadbeat customer.

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Originally posted by Jaclyn Wells on May 11, 2009 in Ideas.

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