Can I Deduct an Invoice That My Customer Refuses to Pay?

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Question: Can I deduct an invoice that my customer refuses to pay?

Answer: Like many tax questions, the answer is maybe.

It all depends on when your company records income. A company can choose between recording the sale at the date of the invoice (on the accrual basis) or when the invoice is paid (on the cash basis).

If the company is on the accrual basis, then the bad invoice can be deducted.

But if the company uses the cash method of recognizing income, then you cannot deduct the bad debt, since you never recorded the income. You will, of course, be able to deduct any material or labor that you used on the job.

Like any good CPA, I need to add a disclaimer: Unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.