Which of the following taxpayers can claim a business bad debt deduction for the current year?
I.Sylvia lent her neighbor $4,000 to put a new roof on his home. Because they have been friends for over 15 years, Sylvia trusted her neighbor to pay her back and didn't make him sign a note with interest. The neighbor has left town and Sylvia will not get any of her money back. Her loss is properly related to this year using the cash basis of accounting.
II.Saul is an attorney using the cash basis of accounting. One of his clients is short of money to pay the utilities in the office building Saul rents from him. Saul advances the client $5,000. Saul has just learned that the client has filed bankruptcy and that Saul will not be repaid for any part of the loan.

Question

Which of the following taxpayers can claim a business bad debt deduction for the current year?
I.Sylvia lent her neighbor $4,000 to put a new roof on his home. Because they have been friends for over 15 years, Sylvia trusted her neighbor to pay her back and didn't make him sign a note with interest. The neighbor has left town and Sylvia will not get any of her money back. Her loss is properly related to this year using the cash basis of accounting.
II.Saul is an attorney using the cash basis of accounting. One of his clients is short of money to pay the utilities in the office building Saul rents from him. Saul advances the client $5,000. Saul has just learned that the client has filed bankruptcy and that Saul will not be repaid for any part of the loan.
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Quizplus · Accepted Answer

A business bad debt deduction can only be claimed if the debt is related to the taxpayer's trade or business. Sylvia's loan to her neighbor is a personal loan, not related to a business. Saul's advance to his client is also not related to his business as an attorney, but rather a personal loan to help with utilities.

Which of the Following Taxpayers Can Claim a Business Bad