Can unearned income in the service industry be consider a Loss?

Question

I am trying to find out if I should include unearned income on my Profit and Loss Summaries as an independent mortgage originator, since there are costs associated with running a loan and many of these are absorbed by me and not the company. Would I only be able to claim the third party costs I pay? Would I even be able to claim those?

My accountant passed away without filing my taxes and I am getting different answers from everyone I contact to prepare and correct my prior years return...

I am trying to restore my P&L's and this is more confusing than I anticipated, as I was told I could not claim milage to sales calls and trainings, but could claim losses and unearned income and this is exactly opposite what others are telling me...

Thanks in advance for your help.

Answer 1

You can deduct all business costs you personally incur, whether or not the loan goes through.  Meaning, even if you do not ever see the income you thought you would see.

However, you can't deduct the money you don't receive (is that what you mean by "unearned income"?), because you should have never included those items as income on your tax return in the first place.

Now, if you have P&L's that are accrual based (meaning they have unrealized income on them) and your tax return is cash based, then adjustments do need to be made.

You didn't say if you are an employee or self-employed.  That has a big impact on how all this is reported on your tax return.

Perhaps you can provide more information to see if I'm on the right track with my comments, but I really believe that you are going to have to find a new tax professional that you can trust to do it correctly.  An enrolled agent or a CPA that specializes in taxes will fit the bill nicely.

Answer 2

Unearned income is considered a liability - you owe someone the services or product.  You should be able to claim BUSINESS mileage (keep a log) or actual auto expenses related to business (use a percentage of costs).  Money to contribute to expenses is considered a contribution or loan to company, depending on your corp set up.

You should try to get another CPA or accountant or buy Turbo Tax for business based on your corp business.  Turbo Tax has an interview process so you can answer the questions and plug in the numbers to get your tax return done.

Answer 3

I think your problem has a basic root i.e your existing bad debts and your orders in process.The defination of bad debts is non realisation of your dues over a period of 6 months without any solid reason. Bad debts can always go out of your income bracket, but to show them as business loss you may have to add reasons which should sound convinsing to income tax authorities. To be more honest you can get every thing through if you consult income tax authorities and not the local touts or even a CA.