Posted by Nicole_NCali on 11/30/04 12:54pm
Msg #12311

Tax Advice: For non-paying companies

Unfortunately, we are not lending institutions and can't issue 1099-c but we can take a deduction for non-paying companies on our tax returns. So keep this in mind for all of the companies who stiffed you on payment and use this as a loss on your schedule C.

I am not only a notary, but I do tax returns on the side too.

Reply by sue on 11/30/04 2:16pm
Msg #12317

I'm not a tax preparer but I pay one to do my taxes. There are 2 types of business accounting. I know that I use the cash basis and I cannot deduct uncollected debt. I forget what the other type accounting system is - accrual maybe?

Reply by Nicole_NCali on 11/30/04 2:23pm
Msg #12318

you are so right. Accrual is what most people who are sole proprietors use.

Reply by Tony (FL) on 11/30/04 3:45pm
Msg #12334

It is my understanding that in order for you to take a loss for non payment you must also report the amount as income.

Reply by Nicole_NCali on 11/30/04 4:25pm
Msg #12343

no, when you get to the portion of business losses such as non-payment, this would constitute a legitimate loss for business purposes. For gambling losses, well that rule does apply, you must report winnings to take a deduction for losses and the losses must equal or be less than the loss.

Reply by Bob-Chicago on 11/30/04 4:32pm
Msg #12345

I disagree

I believe that most sole propriortors in service business use the cash method of accounting
Income is not earned until received
Receivables which are never collected are NOT reflected on the tax return.
On a cash basis of accounting you may NOT decduct bad debts.
If you use the accrual method (few NSAs would) bad debts are treated in an entirely different manner, that I will not go into here.
Confirm all of this with your tax advisors

Reply by HisHughness on 11/30/04 5:02pm
Msg #12346

I'm about to establish very clearly that I am not a tax lawyer and that I've never practiced tax law.

My understanding of claiming losses as deductions is that you can only deduct those in which you actually incurred an out-of-pocket expense.

Example: You buy a piece of wood for $5. Your employe Joe, whom you pay $10, mills the wood into a toilet seat. Joe Flush calls up to order a toilet seat. You sell him the toilet seat for $40. Jane Tinkler takes the company truck to the next city to deliver the seat; you pay Jane $5. The customer gets the toilet seat but never pays the $40. You are entitled to deduct the $5 you paid for the wood. You may also deduct the $15 you paid Joe and Jane and the $5 cost of operating the delivery van as business expenses. You cannot deduct the $15 in lost profit.

When I practiced law, I never deducted fees I had to write off. How are notary public fees any different?

Reply by Orca(tax) on 11/30/04 5:12pm
Msg #12347

As a cash basis sole proprietor you cannot take a deduction for the not paying bad company, but you can deduct all the expenses you made for this job, including mileage ($0.375 / mile) or actual costs, also if you make collection costs, they are deductable. Phone costs also.

Reply by Nicole_NCali on 11/30/04 5:29pm
Msg #12348

Thank you for the clarification. After reviewing the posts, it seems as if some people are paying double of what the signing would cost to just get a payment. The notary act is not what I was referring to. I was referring to the mileage, telephone cost (long distance/cellular), etc..