Posted by Dennis_IN on 4/25/12 7:08pm
Msg #418906

How to handle a cancellation...

I find it very rude and disrespectful for a L/O to schedule a closing without a clear to close, especially on the last day to sign in order to fund that month. This just happened to me and of course I had turned down several closings because I was already booked for that time slot. I was very professional with the title company, it was not their fault.
Let me ask a question. Would it be acceptable to write off the missed fee as a bad debt? They contracted with me reserving a time slot and then at the last minute decided they did not need my services; therefore, I feel I should be able to write off the amount of income I should have received as a bad debt. I did not replace the missed income with another closing during that time slot. Any accountants or lawyers out there care to comment on the legality of this.

Reply by MW/VA on 4/25/12 7:14pm
Msg #418908

This has been discussed before, about writing off bad debt. Most of us use a "cash method", and list income as it is received. Under that system, there is no way to write off a negative amt. We either receive it or we don't.
Sorry about your inconvenience. I hate when that happens, and it's happened to me a few times recently. I can understand why they're trying to push loans through at current interest rates, but sometimes they're just not ready to go. I had a cancellation today also, and could have more than filled that time slot. It's part of the biz, unfortunately, and I just go with the flow.

Reply by Les_CO on 4/25/12 7:49pm
Msg #418911

Yup! If you like jail food?
Guy just promised me $1,000,000.00 for my secrets of being a successful NSA…I told him…He didn’t pay!!!! Can I write this off?…From ordinary earned income? Can I carry the loss forward? (I didn’t make a million last year) From capital gains? (I’ve been a notary in business for years and some of my advice came from knowledge gained years ago) I’m not a lawyer, or an accountant (if I were both maybe I would have made a million last year…especially if I could answer yes to the question and prove it.

Reply by JanetK_CA on 4/25/12 8:55pm
Msg #418926

I believe the only way you can legally do that is if you use the accrual method of accounting. For more info on that, you have to ask someone else... Most of us use cash accounting, as someone else said.

Reply by sueharke on 4/25/12 11:56pm
Msg #418948

That is correct that if you use the accrual method of accounting income is recorded as services are performed, paid or not. Expenses are deducted, paid or not. I an also a CPA.

Reply by LKT/CA on 4/25/12 10:57pm
Msg #418945

I'm not an attorney or accountant but going forward, there may be a way a canceled signing is not a complete loss. As part of your fee agreement (a reply to the confirmation), you can impose a cancellation fee such as if the hiring party does not inform you in writing within X amount of time, you are due a cancellation fee if X. Then if that happens (you aren't informed in the required time), you bill them for a cancellation fee and if they don't pay it THEN you have something to write off.

Again, not an attorney or CPA....just tossing "thoughts" around.

Reply by sueharke on 4/25/12 11:58pm
Msg #418950

Billing for a cancellation fee that is unpaid (if you are on a cash basis) is not deducible. It you take them to court and get a judgement and the judgement is not paid, then you have a short-term capital loss on your income tax return because of the bad debt. I am also a CPA.

Reply by Bob_Chicago on 4/25/12 11:43pm
Msg #418946

too late to get into detail as to "why" but any ideas posted

in this thread, indicating that you might be able to write off anything in this situation are WRONG

Reply by sueharke on 4/26/12 12:01am
Msg #418951

Re: too late to get into detail as to "why" but any ideas posted

This is the CPA writing again. It all depends on the terms of the written contract whether you may deduct an unpaid fee. You may also have an oral contract, but it is harder to prove what the two people agreed too.

Reply by Sha/CA on 4/26/12 12:28am
Msg #418953

Accrual or cash?

So, can anyone use the accrual method and why would one do that?

Reply by JanetK_CA on 4/26/12 2:26am
Msg #418956

Re: Accrual or cash?

I'm NOT the CPA - but I used to be involved in budget planning at a couple of previous jobs for some major companies and I remember working on accruals for our department whenever budgeting time came around. My impression is that it takes a lot more record keeping, but I think it helps big organizations track cash flow, i.e. expenses vs budget. I remember we had a budget for every expense category and we received monthly reports that showed how we were doing in actual expenditures.

I believe the accrual method keeps expenses more consistent, as they are charged off when they occur, not when they're actually paid out. This is one of the reasons that 1099s don't always match our records. If we're using cash and they're using accrual, there will always be some differences.

Hopefully Sue will be able to fill in the blanks and correct any inaccuracies here...

Reply by Buddy Young on 4/25/12 11:57pm
Msg #418949

Re: NO!!!!!!!!! n/m

Reply by Deborah Breedlove on 4/26/12 12:26pm
Msg #418995

Simple explanation

The purpose of the bad debt deduction is to remove the amount that you never received from your taxable income. If you use the cash method of accounting, as most individuals and small businesses do, you would not have recognized the income until you received it. Therefore, you would not take a bad debt deduction to cancel out that income, since it was never included in the first place. The bad debt deduction is to offset that income only, not other income.

If you used the accrual method of accounting, you would have recognized the income when it was earned. In that case, you'd take a bad debt deduction to offset that taxable income that you had previously accrued.

So, sorry for the lost income, but no deduction.