an uncollectible debt. The problem is to determine when a debt is realistically
dead, which means there must be some evidence of uncollectibility or a lengthy passage
of time. Discharge in bankruptcy, the running of the statute of limitations to bring
a lawsuit, disappearance of the debtor, a pattern of avoiding debts or the destruction
of the collateral security can all make a debt "bad. " For income tax deduction
purposes such a debt in business is deductible against ordinary income (found in
federal income tax Form 1040 Schedule C) and such a personal debt is deductible
against short-term capital gains. A debt due for services rendered is not a bad
debt for tax purposes, since there is just no income on which to be taxed.
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