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Everything you need to know about qualifying for a bad debt tax deduction

by , 19 August 2014
Before you try claim a debt from SARS as a tax deduction, there's some important information you need to know. When it comes to debts, the only kind SARS will give you an allowance for are the bad debt kind. The ones you can't get back for your creditor no matter how hard you try.

If you claim for a debt that isn't bad or do it in the wrong way, you could face penalties and a lengthy SARS audit.

To help you avoid this problem, we're revealing some of the most important information you need to know about qualifying for a bad debt allowance...

 

When it comes to qualifying for a bad debt allowance, here's what you need to know

 
To qualify for the bad debt allowance, you must make some effort to collect the outstanding amounts.
 
You should also:
 
Levy interest on overdue accounts;
Offer settlement discounts;
Send reminders to the debtor;
Send letters of demand; 
Make telephonic contact to follow up on outstanding payment; and 
Pursue legal action.
 
If you've done all this, you'll be able to justify to SARS that the debt is potentially irrecoverable. This means you've done everything you can and you still can't get your creditor to pay the debt. You must document this process so you can prove your efforts to SARS.
 
But what happens if you gave your creditor assets or stock on credit?
 
*********** Best seller  *************
 
Legally pay less tax
 
 
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Here's what to do if you gave your creditor assets or stock on credit 

 
If you sold assets or stock to the creditor, try to recover the remaining assets or stock the creditor hasn't paid for. 
 
If you truly can't recover the debt, then it's within your right to claim the amount as a tax deduction. So document everything in your attempts to recover the debt so you can prove to SARS that you qualify.
 

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