KNOW THE RULES FOR BAD-DEBT DEDUCTIONS — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily


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Q: I am a contractor in the graphic design business. One of my clients went broke and can’t pay me. I’ve read that I can deduct bad business debts. But my accountant says I can’t claim a loss. Who’s right? V.M., New Canaan, Conn.

A: Generally, accrual-basis businesses can deduct business bad debts to offset amounts already accrued into income. The deduction is claimed in the year the debt becomes worthless, so take steps to prove that you aggressively pursued collection. But the rules for cash-basis businesses are different. Basically, you can’t deduct the debt unless you suffered an actual cash loss or included amounts in income.

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