Jed is an electrician. Jed and his wife are accrual basis taxpayers and file a joint return. Jed wired a new house for Alison and billed her $15,000. Alison paid Jed $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant. Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgment. Jed was able to collect the judgment but not the remainder of the bill from Alison. What amount of loss may Jed deduct in the current year?

Question

Quizplus · Accepted Answer

Jed may deduct the unpaid portion of the bill as a bad debt expense since he has made a reasonable attempt to collect the debt and it is now considered partial uncollectible under the Tax Code. Since Jed collected the $2,000 judgment, the loss deduction is limited to the $3,000 ($15,000 bill - $10,000 payment - $2,000 judgment = $3,000 loss).

Jed Is an Electrician