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 judgement. Jed was able to collect the judgement 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 incurred a loss of $5,000 ($15,000 billed - $10,000 paid by Alison) and was only able to collect $2,000 from the judgement. Therefore, he can deduct the remaining loss of $3,000 in the current year as a business bad debt.

Jed Is an Electrician