Reporting Bad Debt in ProConnect Tax

Table of contents:

How do I enter non-business bad debt into an S-Corporation return?

To enter non-business bad debt:

1. Go to Input Return ⮕ Schedule K ⮕ Dispositions.
2. Select Details.
3. Enter the Name of the person who owed the debt and "bad debt statement attached" in the field "Description" in the section Dispositions (Schedule D, 4797, etc.).
4. Enter "Date acquired (negative =various)" and "Date sold (negative=various)".
5. Click the Schedule D tab at the top of the input screen.
6. Enter "Cost or other basis (do not reduce by depreciation)".
7. Mark the box "Nonbusiness bad debt".

The amount in "Cost or other basis" will print as a negative number on Form 8949 and flow to Schedule D as a loss.

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How do I enter business bad debt or forgiveness of debt in the Partnership return?

In a partnership a bad debt is handled in two ways.

1. Go to Input Return ⮕ Schedule K ⮕ Dispositions.
2. Enter the amount in Bad debt.
3. Then handle the disposition as a normal disposition under Dispositions (Schedule D, 4797, etc.)
4. That way it will show on page 1 of the 1065, Line 12 and the Disposition will show on the schedule D.

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How do I enter non-business bad debt for a Partnership return?

1. Go to Input Return ⮕ Schedule K ⮕ Dispositions.
2. Select Miscellaneous Info. from the top right.
3. Enter the applicable amount in the field labeled Nonbusiness bad debt .

The amount entered will be reported on Form 8949 with Box C as a short-term loss in column H with a label of Non-Business Bad Debt per Pub 550 instructions.  This loss will then flow to Schedule D like a normal disposition. 

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How do I enter non-business bad debt for a Individual return?

1. Go to Input Return ⮕ Income ⮕ Dispositions ⮕ Schedule D/4797/etc.
2. Enter the Description, and basic information.
3. Enter the basis of the bad debt in Cost or other basis (do not reduce by depreciation).
4. Click on Details for the transaction.
5. Click the Schedule D tab. 
6. Select the box Nonbusiness bad debt
7. Enter your explanation in the Explanation of nonbusiness bad debt 

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How do I enter bad debt in a corporate return?

• Farm Activities:
  1. Go to Input Return ⮕ Income ⮕ Farm Activities
  2. Scroll down to the Farm Expenses section 
  3. Make an input in Bad debts
• Rental/Other Passive Activities
  1. Go to Input Return ⮕ Income ⮕ Rental/Other Passive Activities
  2. Scroll down to the Expenses section
  3. Make an input in Bad debts
• Deductions
  1. Go to Input Return ⮕ Deductions ⮕ Deductions**
  2. Select Deductions 
  3. Make an input in Bad debts
• Bad Debts
  1. Go to Input Return ⮕ Deductions
  2. Select Bad debts
  3. Make any applicable inputs on this screen

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How do I resolve Diagnostic ref. #2025028?

 "Disposition #X:  Attach a nonbusiness bad debt statement." (ref. #2025028)

The program does not automatically create a statement and the generated diagnostic will not be cleared.  However, the return can be e-filed with this critical diagnostic.  The statement with the appropriate information must be manually created.  It can be mailed with a return or if converted to a PDF file, can be attached to the efile return. For information on attaching a PDF to an return see How to attach a PDF to a tax return for e-file

Enter the required information for the statement.

• Description of bad debt, including the amount, and the date it became due
• Name of the Debtor, and any business or family relationship between the taxpayer and debtor
• Efforts made to collect the debt
• Reason why the debt should be considered worthless

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