USA refunds for services not rendered on schedule c

[DeniseM]

I get paid in advance from clients for consulting services. One of my clients changed their mind and now I had to give refund.

What line on schedule c do I put a refund for services not rendered? I understand line 2 (returns/allowances) is for products. True??

 

[Bad Medicine]

I'm NOT an accountant and really have no idea, but ... could it be that you're trying too hard ? With accrual you recognize income when you earn it, and with cash you recognize income when you receive it ... but you've really not done either. You never earned the money, and yes you did receive money but you gave it right back, so you still didn't receive money for work performed. Who could blame you for just pretending it never happened ? Seems like you could debit prepaid sales, credit cash, and call it a day.

 

[DeniseM]

I forgot to mention that it was months between receiving the money and returning it. Income showed on 1099 form last year and has already been reported, being a cash basis of reporting, even though I never earned it. I just wasn't sure where I reflected the return on schedule C since it is for services, not products. Thanks!

 

[MzTaxLady]

Hi Denise!

I'm new here. Since you've already reported the income when you received the 1099 last year and had to return the funds this year, I agree that the refund should go in the returns and allowances line. Ordinarily, this line is only used for accrual basis tax payers but since the income was received and taxed and you issued the refund this year, you have to out it here to reduce this year's tax liability since you actually paid the money back this year.