I did embroidery and engraving for a person who lost his business and I also sold him a machine. He tried repaying but do to the bankruptcy, he couldn't pay me back. I have all the invoices that are outstanding. I know now that there is no likelihood of getting repaid. Is it too late to file this bad debt? The services were provided 2009-2011.
Yes, you can deduct a business bad debt in the year that it becomes worthless. If the debtor has been adjudicated bankrupt and you received no payment (or only partial payment) from the bankrupt estate, that is proof or worthlessness.
To qualify for this tax-saving deduction, though, you must use the accrual method of accounting, which entails booking income when a product or service is sold.
If your business uses the cash-basis method, you can't deduct a worthless receivable as a bad-debt expense because, with this accounting method, you don't count income until it is received. So you don't need a deduction to offset the amount not paid, because you never included that amount in income.
For more information, please see IRS Pub. 535 Business Expenses.
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