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Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2355
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Can I report unpaid contractor invoices as a loss with any

Customer Question

Can I report unpaid contractor invoices as a loss with any credit on my business schedule for the matching tax year ? my preparer says no , my industry colleages say yes.what is your position.
Submitted: 7 months ago.
Category: Tax
Expert:  Anne replied 7 months ago.
HiI'm Anne. I've been preparing taxes for 28 years and I'll be happy to help you. Are you a sole proprietor?
Customer: replied 7 months ago.
Yes , I have 22 unpaid contractor invoices totaling 7,298
Customer: replied 7 months ago.
Same co owes these funds , my tax prepare says I have no reportable deduction or credit for this unpaid labor
Customer: replied 7 months ago.
Feeling ripped off bout now for my $38 wow it's all a hustle!!
Customer: replied 7 months ago.
Ann are you there?
Expert:  Anne replied 7 months ago.
Yes, I'm here
Expert:  Anne replied 7 months ago.
Do you know if you're using a cash or accrual basis for your business (last question, then I'll post my answer)
Customer: replied 7 months ago.
Cash due for each invoiced job
Expert:  Anne replied 7 months ago.
That wasn't as clear as I hoped you would be, but I may not have asked the question correctly.Let me try this: When you Invoice a customer, do you enter the money they were invoiced for after you receive the actual payment, of do you enter it as part of your gross income earned the date you invoice them?
Customer: replied 7 months ago.
It's monies payable after each job , pretty standard practice
Customer: replied 7 months ago.
If you bill someone for the work done after each time you work with a different job # ***** job location it's all unpaid labor, so can I report it as a loss or not? If you stiff your contracted labor, i.e. Plumber, electrician , or lawncare guy can they claim it ?
Expert:  Anne replied 7 months ago.
Ok That helped alot. You are on the "cash" basis then, and your tax preparer is correct, you can't count income that you haven't received as a loss. Please see Pub 535, chapter 8 found here:https://www.irs.gov/pub/irs-pdf/p535.pdf If my answer has been helpful, please take the moment to rate positive by clicking on the starsIt is ONLY through positive ratings that we are compensated for our time and knowledge Thank you for choosing justanswer
Expert:  Anne replied 7 months ago.
My apologies for the wait.........my computer froze, and I had to re boot
Expert:  Anne replied 7 months ago.
This is from the pub 535 I referred you to:Cash method. If you use the cash method of accounting, you generally report income when you receive payment. You cannot claim a bad debt deduction for amounts owed to you because you never included those amounts in income. For example, a cash basis architect cannot claim a bad debt deduction if a client fails to pay the bill because the architect's fee was never included in income.
Expert:  Anne replied 7 months ago.
What is your business?
Expert:  Anne replied 7 months ago.
I see you went off line Depending on the type of business you have, it may not be a TOTAL loss. If you purchased supplies, tools, etc those expenses would still be deductible on your Business return. You will still be "out" the labor you put into a job.......Not a great compromise but the only one that IRS allows for legally.
Expert:  Anne replied 7 months ago.
HiI was checking back with you to see if you had any further questions? Concerns? I know that this was not the answer you were hoping for, but please know if there were a legal way to deduct these non collected payments as a deductible expense, it would have been my pleasure to tell you so. Again, if this answer was helpful to you, please take the moment to rate positive by clicking on the stars so that I may receive credit for working with you. Thank you again for choosing justanswer