If your wife kept her business books using the cash method of accounting where income is recognized only when it is actually received and expenses are recognized only when you pay them by cash, check, or credit card, then she cannot deduct the invoice for unpaid work as a business bad debt because she had not previously recognized the income. However, she can deduct the actual expenses related to the work she did for that client. For example traveling to the client, making copies, research materials, etc.
If your wife used the accrual method of accounting and recognized the income when she invoiced the client, she may be able to deduct the cost of the work not paid for as a business bad debt. The debt is deductible in the year it becomes entirely or partially worthless. I suggest keeping all documentation that shows a debt is worthless, such as copies of unpaid invoices, statements, collections letters your wife sent to her client, and a log of collection calls that have been made.
If you need to enter the business bad debt, you can do so in the Business expense section under Other Miscellaneous Expenses.
[Edited 04.14.18 | 4:16 PM]
