Tax liability?

Question

as an independant contractor I am out a payment or series of payments this year totaling 7K, due to business that I work out of not being able to pay me and being on the brink of bankruptcy. Can I take this non payment as a deduction on my taxes at the end of the year? I work on commission only.

Answer 1

No, the non payment isn't a deduction.  You never got it to pay tax on in the first place.

Answer 2

You can't claim it as a deduction.  However, you don't need to report it as income since you never received the money.  You are still allowed to claim any expenses related to the job that you were never paid.

Answer 3

Generally, we are all "Cash Basis" taxpayers.  This means we are taxed as we receive income.  This also means that we can not deduct income not paid to us as it was never taxed in the first place.

Short Answer:  No deduction.

Answer 4

No, unless you have already declared it as income.  That is only possible if one of these is true:

1. You are a cash method filer (99.9% of us are) and you reported that income already - in a previous year - therefore you paid tax on it.

2. You are an accrual method filer (very rare) and you have already included it in income this or a previous year - therefore you would be paying tax on it.

In either case you would get to deduct it since you had already reported it and subjected yourself to tax on it.

Otherwise, you don't get to deduct it.  That is because you really haven't lost any money - you have just lost your time and the opportunity to make money - and those don't qualify you for a deduction.