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5 deductions that small business owners don't take advantage of

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3. Losses due to bad debts.

While some decisions can cost your business financially, there could be a positive side. You may be able to recover part of the bad debts by canceling those costs in your taxes.

To deduct these business losses, the debt must be valid and must show that you have a real investment in that debt. A good way to demonstrate this is to make the loan appear in your company's financial records.

To be a valid or good faith debt, there must be a proven debtor-creditor relationship. The proof includes some type of loan agreement form that the borrower has signed. Unpaid child support, salaries, salaries, rents, interest or dividends are not considered bad debts.

In order to deduct bad debts, they must be canceled during the year in which you take the deduction. In addition, you must show that you took reasonable steps to collect the money. If there is no possibility of the debt being repaid, report it on your tax return. If you have the bad luck of having more than one bad debt to report, you must list them separately.

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