Can I use the income I lost when someone files bankruptcy on me?

Question

I own a small construction company, 4 years ago a I lost a fairly large amount of money on a job I did. I was a sub constractor on the job, the company I did the work for filed bankruptcy on me and I got nothing. I'm wondering if that income I didn't receave from my work if that wouldn't be tax deductable at some point ?????

Answer 1

If you are a "cash basis" company, then no. Why? Because you never declared the income. You can't write off what you never declared.

If you are a "accrual basis" company, then yes. Why? Because you had to claim the income as the job was completed. Now that you won't get the money, you can subtract the income back out. Remember, although you lost your own time forever, you still get to write off all of the labor you paid out and material you paid for.

Try to get some of the money up-front on future jobs. I know this isn't always easy, but it can help prevent a situation like this. Totally sorry for your loss.

Answer 2

Probably Not.

You can only claim it as a loss if you also, at one time, claimed it as income. If you run your business on the accrual basis (most small businesses don't), income is recorded as earned and not as received. Most small businesses run on the cash basis for income. You record it you receive it. If this is the case, you get no deduction for the lost income as it was never taxed in the first place.

.....sorry....I hope that wasn't too confusing....

Answer 3

If you claimed the amount you billed them as income, you can claim your loss because of their bankrupcy. Unfortunately, four years ago is too late to get a refund. Did they just file, or was it filed back then. Your loss would be in the year when the debt became worthless.

If the amount was never claimed as income, then no you can't claim the loss.

Answer 4

yes you can claim that as a loss