Most taxpayers must use the specific charge-off method in calculating the bad debt deduction.

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The IRS requires most taxpayers to use the specific charge-off method when calculating the bad debt deduction. This method involves identifying each individual debt that has become worthless and deducting it as a bad debt expense. Alternatively, taxpayers can use the nonaccrual experience method for certain types of businesses, such as banks and certain farm-related businesses.

Most Taxpayers Must Use the Specific Charge-Off Method in Calculating