Finance

Have finance questions? Ask a financial expert online.

Ask an Expert,
Get an Answer ASAP!

I just asked this same question to justanswer.com, but it…

Customer Question
I just asked this...

I just asked this same question to justanswer.com, but it was a lawyer who answered. He said I should also check with a CPA. My question was this:

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

I'm a licensed Marriage & Family Therapist in the State of California. I'm a sole practitioner with a private practice. I've been reading up about deductions and bad debts.I often cannot collect for no show or late cancelled appointments, (i.e., insurance will not pay). I also occasionally have private pay clients who book their first appointment then never show up. I am again out the time and money. Lastly, I have a long-term client who originally used her insurance benefits, then filed for bankruptcy so I only charged her $20.00 per session, and now she cannot afford to pay anything for my services. I am essentially seeing her pro bono hoping her financial situation might change. Is this also a bad debt that I can write off? I'm so sorry...that sent while I was still typing...but I'm hoping it still makes sense!

Accountant's Assistant: Is there anything else the Accountant should be aware of?

No. I just hope the prematurely sent message makes sense. The main question is what constitutes bad debt that can be written off my net profits.

Submitted: 8 months ago.Category: Finance
Show More
Show Less
Ask Your Own Finance Question
Answered in 26 minutes by:
10/1/2017
Financial Professional: Tax.appeal.168, Accountant replied 8 months ago
Tax.appeal.168
Tax.appeal.168, Accountant
Category: Finance
Satisfied Customers: 4,712
Experience: Tax Accountant
Verified

Hello. Thank you for choosing this Q&A service for assistance. My name is Angela. I will be assisting you.

In brief, money owed for no shows or pro bono services is not considered bad debt in the eyes of the IRS. SEE BELOW:

-----------------------

There are three requirements that must be satisfied to deduct a bad business debt. You must be able to show that:

  • the debt is a bona fide business debt
  • it is a worthless debt, and
  • you suffered an economic loss.

--------------------------------------

An Economic Loss

You are not automatically entitled to deduct a debt because the obligation has become worthless. To get a deduction, you must have suffered an economic loss. According to the IRS, you have a loss only when:

  • you have already reported the money owed as business income
  • you paid out cash, or
  • you made credit sales of inventory that were not paid for.

Unfortunately, if, like most self-employed people, you’re a cash basis taxpayer who sells services to your clients, you don’t report income until you actually receive it. As a result, you don’t have an economic loss (in the eyes of the IRS) when a client fails to pay. Thus, you can’t claim a bad debt deduction if a client fails to pay you.

REFERENCE SOURCE:

https://www.nolo.com/legal-encyclopedia/why-most-self-employed-service-providers-cant-deduct-bad-business-debts.html

Business bad debts are defined as follows:

Business Bad Debts - Generally, a business bad debt is a loss from the worthlessness of a debt that was either created or acquired in a trade or business or closely related to your trade or business when it became partly to totally worthless. You can deduct it on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or on your applicable business income tax return.

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

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

REFERENCE SOURCE:

https://www.irs.gov/taxtopics/tc450/tc453

If the above information clarifies matters for you, I ask that you please take the time to scroll to the top of the page and select 3 or more stars to positively rate my response so that I can receive credit for assisting you. A 5 star rating is greatly appreciated. Thank you in advance.

Ask Your Own Finance Question
Was this answer helpful?

How JustAnswer works

step-image
Describe your issueThe assistant will guide you
step-image
Chat 1:1 with a financial professionalLicensed Experts are available 24/7
step-image
100% satisfaction guaranteeGet all the answers you need
Ask Tax.appeal.168 Your Own Question
Tax.appeal.168
Tax.appeal.168
Tax.appeal.168, Accountant
Category: Finance
Satisfied Customers: 4,712
4,712 Satisfied Customers
Experience: Tax Accountant

Tax.appeal.168 is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Rakhi Vasavada

Rakhi Vasavada

Financial and Legal Consultant

2,608 satisfied customers

Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years

Megan C

Megan C

Certified Public Accountant (CPA)

2,218 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

Manal Elkhoshkhany

Manal Elkhoshkhany

Tutor

1,920 satisfied customers

More than 5000 online tutoring sessions.

JKCPA

JKCPA

CPA

844 satisfied customers

Bachelors degree and CPA with Accounting experience.

Eric

Eric

Financial Manager

559 satisfied customers

Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.

R. Klein, EA

R. Klein, EA

Accountant

480 satisfied customers

TurboTax Expert. QuickBooks Certified Pro Advisor

Dimitry K., Esq.

Dimitry K., Esq.

Attorney

332 satisfied customers

NASD Licensed Rep, 1997-2001, Business Attorney

< Previous | Next >

Related Finance Questions
I also have another query. Do I have to declare tax after I
I also have another query. Do I have to declare tax after I make $400 or $600?Doing research I hear it's either one of those numbers. Which one is the definitive?… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,366 satisfied customers
Is margin interest expense an itemized deduction item
Is margin interest expense an itemized deduction item (Schedule A, form 1040)? If so, if I choose standard deduction instead of itemized deduction, do I lose my margin interest expense? If I can't ded… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,366 satisfied customers
First time pay my bill with charge card. Hp. Can you show me
good morning first time pay my bill with charge card … read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,249 satisfied customers
I need to create a accounts receivables Roll Forward and
I need to create a accounts receivables Roll Forward and don't know where to start … read more
Fred Rook
Fred Rook
Corporate Controller
BSBA
130 satisfied customers
One more question if you don't mind. Just out of curiosity
One more question if you don't mind. Just out of curiosity even though my non consumer debts are around 85% actually including my medical bills, my ministers allowance is broken up as salary and as a … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I have a business and want to hire a person as an
I have a business and want to hire a person as an independent contractor. On a regular basis.They want to be paid bi-weekly by check. They are a single operator. Do they fill out a receipt for service… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,366 satisfied customers
I have a small business and just started patrolling myself,
Hi, I have a small business and just started patrolling myself, and two employees. I am not at all familiar with the process but when I get paid from a client, I run payroll for myself about once a mo… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I'm trying to fill out an application to rent a house and
I'm trying to fill out an application to rent a house and they are needing the Social Security benefits letter that was issued showing how much I will receive from my deceased husbands benefits. I can… read more
Mark Anderson
Mark Anderson
Attorney
Doctoral Degree
10 satisfied customers
I was working for a business, an S-Corp, and was the
I was working for a business, an S-Corp, and was the ownership had agreed to pay for my college schooling. Before the first payment was made, I ended up buying the business (all of the stock). I am go… read more
TaxRobin
TaxRobin
Vocational, Technical or Trade School
1 satisfied customers
We are selling my mother's house in Ohio, she passed away in
we are selling my mother's house in Ohio, she passed away in January. My father, who died in 2014 and his wife lived in West Virginia. They put a lien on the house for minor repairs several years ago.… read more
TaxRobin
TaxRobin
Vocational, Technical or Trade School
1 satisfied customers
Real estate professional: Please explain the advantage of a
real estate professional: Please explain the advantage of a triple net property over a multifamily as far as income potential and price appreciation. attached is an example of a NNN property. It has r… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,366 satisfied customers
I am considering investing in the "Bank On Yourself Concept"
I am considering investing in the "Bank On Yourself Concept" ; a single premium paid up life policy that gives liquidity, approx 4% annual gains; and tax free grow. Can you give me any pros or cons on… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I wanna know how to know how much I have to charge and what
Hi, I wanna know how to know how much I have to charge and what is my profit if I sell tour service as a travel agency?… read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,249 satisfied customers
Information on 1031 deferred tax on capital gains. I have a
I have a property in a 1031 that i have sold. The money from this sale I want to purchase a primary residence. How do I do this and what tax will i have to pay on this transaction? … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,366 satisfied customers
We need a quick answer. so my partners are working with an
Hi guys, we need a quick answer. so my partners are working with an accountant currently. He's informed them that, because we will be winding down our current startup in which they invested for shares… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I had several tax questions, do i simply just ask and you
i had several tax questions, do i simply just ask and you give me the answer? or i assume there is a way to pay you? … read more
TaxRobin
TaxRobin
Vocational, Technical or Trade School
1 satisfied customers
I just opened an llc..i want to pay myself...can i just wait
i just opened an llc..i want to pay myself...can i just wait till the end of the year and declar how much i paid myself or i must do a monthly draw??… read more
Carter McBride
Carter McBride
LLM
1,139 satisfied customers
Accounting Month End - Why does the Accounts Payable account
Accounting Month End - Why does the Accounts Payable account vary heavily based on the date of the check run at close? Why is 'timing' used as a reason for month over month AP variances?… read more
Dr. Fiona Chen
Dr. Fiona Chen
President
Ph.D.
1,043 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x