Tax deduction question
If a company charges interest on past due accounts and the customer refuses to pay is that uncollected interest charge deductible on the Corporate taxes?
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quote:Originally posted by Barzillia
Did you submit the tax ?
Huh? Submit what tax? I am asking if the unpaid but billed interest charges are deductible as bad debt.0 -
Varies. Possible,but up to only a certain amount,to keep you from charging 867.583%. Consult your tax preparer. 0 -
quote:Originally posted by bpost
If a company charges interest on past due accounts and the customer refuses to pay is that uncollected interest charge deductible on the Corporate taxes?
Might have to do with the 1099c forgiveness of debt. Since you did not get paid for the debt/service, then cancel the debt, I think it is deductable. Special rules probably apply being interest so do a bit of research on how to get the deduction legally. You must be out $600 or more I think.0 -
Most anything is deductible until the audit. Don 0 -
i like the maxim that nothing is taxable and everything is deductible 0 -
quote:Originally posted by dcon12
Most anything is deductible until the audit. Don
A "Trueism" be sure to get a preparer who will assist you with any IRS requests.
Another idea is to write off your cows as "kids". Name them "John, Frank and Ethyl.0 -
If you get audited, just tell the IRS we said it was ok. 0 -
Be sure and mention Jim by name. I have no idea. 0 -
quote:Originally posted by jimdeere
If you get audited, just tell the IRS we said it was ok.
[:D]0 -
if the interest charges were not paid to the corporation then the interest amounts billed are not taxable to the corporation but are rather a loss to the corporation since billed and not paid so long as they were legally billable. 0 -
Maybe a call to your accountant would get a better answer than you will get from this crazy group......
Otherwise I believe Don hit the nail on the head....[:)]0 -
Sorry I just saw this post or I would have answered earlier.
I really liked dcon12's answer but.......
It all depends on the accounting method the corporation uses - cash or accrual.
Under the cash method, a business reports income and deducts expenses as they are paid for or collected. The vast majority of small businesses report under the cash method.
Under the accrual method, a business reports income and deducts expenses as they are incurred, whether they are collected/paid at that time or not.
If the corporation uses the accrual method and has included those interest charges as interest income when the interest/late fees were charged to the customer then, yes, the corporation can deduct those uncollected interest charges as an expense.
If the corporation uses the cash method, then the corporation cannot deduct the uncollected interest charges, because the corporation never collected the interest and therefore has no "tax basis" in the interest charges.
Hope this helps.0 -
And to add to this.
Say you are a business that reports on the cash basis of accounting and you allow people to charge accounts.
If they never pay that account, you do not have a bad debt you can write off of your taxes. You have already deducted your cost in the sale when you paid for the material, supplies, labor, etc. to the people you wrote those checks to. You have actually lost your profit and because you have never reported that profit in your income, you have no "tax basis" in the profit and therefore have nothing to deduct.
If you were reporting on the accrual basis and had properly reported it in income, then there would be a deductible bad debt on the unpaid ticket.0
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