Oregon Construction Contractors (CCB) Practice Test

A business can indeed deduct bad debts from gross income according to IRS guidelines, but there are specific conditions that must be met for this deduction to qualify. Typically, bad debts refer to money that is owed to a business that it knows will not be collected. The correct understanding is that businesses can only deduct bad debts if they meet certain criteria, such as having a reasonable expectation of collecting that debt before it becomes uncollectible and properly writing it off on their accounts. This involves tracking unpaid invoices and making formal acknowledgment of the debt's uncollectibility in the accounting records. Therefore, the statement that a business cannot deduct bad debts is misleading as it does allow for deductions, but with specific circumstances that need to be fulfilled first.