Final answer:
Business bad debts are deductible when using the accrual method and using the specific charge-off method to determine the uncollectability of the debt.
Step-by-step explanation:
Business bad debts can only be deducted when the business uses the accrual method of accounting for tax purposes. Only debts determined to be uncollectible under the specific charge-off method are able to be deducted for tax purposes.
Under the accrual method, income is reported when earned, not when received, and expenses are reported when incurred. If a receivable becomes uncollectible, businesses can deduct it as a business bad debt.
The specific charge-off method requires the business to charge off the specific bad debt in the year it becomes partially or wholly worthless.
"Business" covers a vast spectrum of activities, strategies, and organizations dedicated to the production, distribution, or trade of goods and services.