Carry forward bad debt

[rtmaguire]

The consulting company did work, and sent out invoices.   The client did not pay, and filed for bankruptcy at end of the year - with no remaining assets or chance of recovery. 

Can consulting company treat this as bad debt, and carried forward for future years? 

What is the IRS form or regulation that is used?

[SusanC6]

Maybe.  If someone owes you money you cannot collect, you have a bad debt.  Goods and services that customers have not paid for are shown in your books as either accounts or notes receivable.  If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt.

You can take a business bad debt deduction for these uncollectible amounts only if the amount you were owed was included in your gross income either for the year the deduction is claimed or for a prior year.

When you take the business bad debt deduction, you would reduce the accounts or notes receivable in a like amount.

The business bad debt deduction would be reported on Schedule C for Sole Proprietorship or  your applicable business income tax return.