When can you write-off a bad deb deductiont?
Well, this is a very common question that is asked by clients. The answer to this question depends whether you are filing as a Cash Basis or Accrual Basis Taxpayer.
For a Cash Basis Taxpayer, you cannot deduct this as a bad debt. This is because you have not recognized this bad debt as income. Hence, there is no basis to deduct the bad debt against the recognized income.
For a Accrual Basis Taxpayer, you would be allowed a write-off of bad debt as you have already recognized the income related to this bad debt. Thus, you have a basis to deduct the bad debt against the recognized income.
So, in order to answer you question, if you are a cash basis taxpayer, then you cannot claim a deduction against this bad debt. Whereas if you are a accrual basis taxpayer, you would be able to claim a bad debt.