Deducting Bad Debts - Cash Basis


A

Another Poster

I operate on a cash basis, recording income as received regardless of
when or how much is billed, sole proprietorship.

I have had some invoices turn into bad debts recently.

It is my understanding that I cannot deduct these loses, since I never
recognized the income as an accrual based business would have.
However, a friend of mine (also in business on a cash basis, sole
prop) says that he deducts his loses due to bad debts.

Who is correct?

Thanks,
 
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S

Stuart A. Bronstein

Another Poster said:
I operate on a cash basis, recording income as received
regardless of when or how much is billed, sole proprietorship.

I have had some invoices turn into bad debts recently.

It is my understanding that I cannot deduct these loses, since I
never recognized the income as an accrual based business would
have. However, a friend of mine (also in business on a cash
basis, sole prop) says that he deducts his loses due to bad
debts.

Who is correct?
You are.
 
R

Reggie

Another Poster said:
I operate on a cash basis, recording income as received regardless of
when or how much is billed, sole proprietorship.

I have had some invoices turn into bad debts recently.

It is my understanding that I cannot deduct these loses, since I never
recognized the income as an accrual based business would have.
However, a friend of mine (also in business on a cash basis, sole
prop) says that he deducts his loses due to bad debts.

Who is correct?

You are, of course. However, one can never be certain what one is being
told. Perhaps your friend is filing his taxes incorrectly, or perhaps he is
referring to the fact that he is "writing off" these deadbeat invoices in
his accounting program so they no longer show as owing, but filing his taxes
correctly based on income received.
 
A

Another Poster

You are, of course. However, one can never be certain what one is being
told. Perhaps your friend is filing his taxes incorrectly, or perhaps he is
referring to the fact that he is "writing off" these deadbeat invoices in
his accounting program so they no longer show as owing, but filing his taxes
correctly based on income received.
Thanks all. While I like being correct, it would have been nice to
deduct them :).

I don't think he's in the "write them off" verbiage category. I think
he's really deducting them. We will have to have a talk.

(As I side note, I love it when someone say "but you don't have to pay
for that, right? It's just a business write off" :)
 
P

Pico Rico

(As I side note, I love it when someone say "but you don't have to pay
for that, right? It's just a business write off" :)
That ranks right up there with "Oh, you have your own business - that must
be great! You can take as much vacation as you want whenever you want to!"
 
S

Stuart A. Bronstein

Another Poster said:
(As I side note, I love it when someone say "but you don't have
to pay for that, right? It's just a business write off" :)
Well, it is a business write-off, in a sense. You just can't write
it off twice, which is what he was really talking about doing.
 
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A

Another Poster

Well, it is a business write-off, in a sense. You just can't write
it off twice, which is what he was really talking about doing.

Yeah... my subtle point is that they think a "write off" means "free"
and that you save 100% of the expense, when it's really just a
discount off purchase price at your tax rate.
 
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S

Stuart A. Bronstein

Another Poster said:
Yeah... my subtle point is that they think a "write off" means
"free" and that you save 100% of the expense, when it's really
just a discount off purchase price at your tax rate.
My father ran his own business, and my mother did the books and
taxes, though she was completely untrained to do either task.

She knew that supplies are written off and equipment was
depreciated. So on the taxes she would depreciate equipment, and
then also write it off.

Over more than 20 years the business was audited twice by the IRS,
and neither time were those double deductions ever either an issue
or even discovered.
 

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