Deduction for Payments Never Received

[gfizer]

I have a cash basis taxpayer who is a speech therapist. She performed services to clients in their homes as an independent contractor through a local agency. The agency went belly up and never paid her (or several other independent contractors) for services rendered in the amount of $3,550.00. When she brought her information to me she asked if there was any way she could deduct anything for the funds she never received. I told her that as a cash basis taxpayer since the amounts had never been included in her income she did not have any bad debt deduction. She insists that some of the other independent contractors were able to take a deduction. Am I missing something?

Thanks,

Gina

[Lion EA]

Just tell her she's deducting them by not reporting them as income and paying lower taxes as a result.

I have one "cash basis" speech for those who will understand and a different speech for those that say all their friends do it.

[OldJack]

You are not missing anything. Tell her she could take her tax info to whoever prepared her friends tax return, but it is still not an allowable deduction.

[GeneInAlabama]

No, it would be like deducting lost rent on a rental house that was empty for 2 or 3 months.

[taxtrio]

I tell them I could add it in and then deduct it out and the answer would remain the same ... except for the extra fee I would charge them to do it.

It sounds like the gal I had a few days ago that is a speech therapist, (1099MISC). She says she gets 60 percent of money earned in clinic; the clinic gets the 40 percent for their expenses. But the HR person told her she allowed to claim 5 % of the 40% that she doesn't get for "rent" because

5% of the part they keep is her rent and to use it as an expense! Not in the 1099, so no deduction!!

[MsTabbyKats]

Your client is probably unaware of what the other preparers did with the income.

[kcjenkins]

Unless the others' are using accrual and reported the income already, they can't deduct the 'loss'. But we all know that some preparers, rather than argue about it, let their clients 'think' that they deducted something that they did not really do. That could be why she was told that. Then there are the clients who just ASSUME that whatever they give you, you take. Surely we've all had a few of those, too.

[gfizer]

I was almost 100% positive that I was correct about this but just wanted to be sure I wasn't missing anything. It is so nice to be able to run things past this group. It's been said many times before, but I appreciate each one of you and your willingness to share your knowledge and thoughts during what is such a busy time for all of us.

Thanks again!

Gina

[joanmcq]

Or her friends were all using TurboTax and putting garbage in & getting garbage out.

[RitaB]

It' so hard to prove a negative. When I get these questions, I try to give the client something to read, so they can't misinterpret what I said. Ok, they can, and will, but I keep trying. Here's an article, and you might print this thread, too.

http://yourbusiness.azcentral.com/write-off-unpaid-invoices-sole-proprietorship-1294.html

[taxxcpa]

Here is an example that illustrates why you can't take it:

You bill $2,000,000 and only have $100,000 in expense.

Half fail to pay so you deduct $1,000,000

So you now have a net taxable loss of $ 100,000 yet have $900,000 more than you had before.

[michaelmars]

if all of you don't pay me $1 then I will have a big loss this year, Yah, no taxes to pay.

[GeneInAlabama]

If all of you don't pay me $2, then I'll have an even bigger loss.

[RitaB]

if all of you don't pay me $1 then I will have a big loss this year, Yah, no taxes to pay.

If all of you don't pay me $2, then I'll have an even bigger loss.

This is why Gene makes the big bucks. Unless he doesn't.

[Gail in Virginia]

And if you all want to pay me $1 or $2, I will report the income, pay the taxes and not gripe (much). Promise.

[michaelmars]

do you accept bitcoins?