Question

Martha, an accrual-method taxpayer, has an accounting practice. In 2015, she performs tax analyses for Arnold and sends him an invoice for $10,000. In 2016, Martha sells her practice and all accounts to David. Arnold's debt becomes worthless that year after David has purchased the practice. The result is A) Martha deducts a nonbusiness bad debt in 2016. B) Martha deducts a business bad debt in 2016. C) David deducts a business bad debt in 2016. D) David deducts a nonbusiness bad debt in 2016.

Answer 1

Answer:

The correct answer to the following question will be Option C (David deducts a business bad debt in 2016).

Explanation:

• David recently obtained an allowance as either a means of taking a poor deduction on income, the justification being the liability accrued in the company or sector where certain David is working. Therefore he has the right to the deduction.
• Although I guess it will be 2016 throughout the view of poor debt reduction in 2015. Because he has not inherited that at this point.

Other choices have no relation with the specified scenario. As well as the answer to the above seems to be the right one.