Paid a vendor for services not provided, they can't refund the payment. How can I deduct it?

If you previously took a deduction for the amount paid as a business expense, then you don't have a second deduction for a bad debt.

If you didn't take a deduction for the amount paid, you could have a nonbusiness bad debt deduction if you took reasonable steps to collect the debt. See IRS Tax Topic 453.

The following are examples of business bad debts (if previously included in income):

• Loans to clients, suppliers, distributors, and employees
• Credit sales to customers, or
• Business loan guarantees

A business deducts its bad debts, in full or in part, from gross income when figuring its taxable income. For more information on methods of claiming business bad debts, refer to Publication 535, Business Expenses.

Nonbusiness Bad Debts - All other bad debts are nonbusiness. Nonbusiness bad debts must be totally worthless to be deductible. You can't deduct a partially worthless nonbusiness bad debt.

A debt becomes worthless when the surrounding facts and circumstances indicate there's no reasonable expectation that the debt will be repaid. To show that a debt is worthless, you must establish that you've taken reasonable steps to collect the debt. It's not necessary to go to court if you can show that a judgment from the court would be uncollectible. You may take the deduction only in the year the debt becomes worthless. You don't have to wait until a debt is due to determine that it's worthless.

Report a nonbusiness bad debt as a short-term capital loss.