bad debt from LLC?

[Possi]

My client has a new line on her P&L for her catering business. "Bad Debt Write Off" is $10,574.64. 

Can her self employment be reduced by bad debt? It would make sense, since the income was already realized as self employment. 

But, doesn't bad debt go on the Sch D? 

 

[Catherine]

She can only write off bad debt if she has taken it as income (as in accrual accounting).  If she's cash-basis, here "write-off" is simply NOT taking as income funds she is owed but never got.

I've shown this to clients who *insist* on seeing it as "other (owed) income" with a "bad debt" line - all in the "other expenses" section.  So it zeros out, but you "took" the debt.  That is *only* for clients whose tiny brains simply cannot fathom that the can't take as "bad debt" money they never received but also never claimed.

If her SE business runs on accrual, then yes she claimed it as income and bad debt goes on the Sch C.  Because it offsets the SE tax already paid on income she doesn't have.

[Possi]

I probed this morning, and she has not included it as income, so no deduction. 

You'd think the bookkeeper would have known that, wouldn't you. 

[jklcpa]

In other words, that P&L wasn't generated from a balanced set of books where the numbers all tie in. If this statement was generated from a set of books using double entry bookkeeping, where was the credit side of the entry posted that allowed this line item to appear on the P&L?  What else is fabricated or incorrect?

[Catherine]

I had a client who tracked this non-existent bad debt.  I ended up excluding it from the P&L as a specially-named report.  Everything else was fine; this person just wanted to know if the number of deadbeats were staying steady or not.