@fanboy wrote:
Hi @Opus 17 /members.
We ended up returning $7,000 in 2021 for payment received in 2020 (job basically got cancelled). So we paid taxes on that $7,000.
You mentioned we would deduct the $7,000 as an expense in 2021, but is there a specific form we should use so the IRS knows that we returned the money to that specific business who paid us?
We're not sure where we would place that number in our 1040, or will TurboTax prompts us at some point.
Thank you and yes, I'm starting to tally up my expenses for the year already! 😉
Frank
Customer refunds is one of the categories of expenses on schedule C (line 2, in fact). Turbotax should ask about any refunds when you prepare your wife's schedule C for her consulting business. You don't have to show the IRS which specific business you refunded on your tax return. That will reduce your taxable income for 2021 so even though you paid more tax in 2020 (by including income for a job that was cancelled) you pay less tax in 2021.
