So I built a website (from scratch to finish) for a "friend's" coffee shop and we verbally (and through text messages) agreed on a price of $1200. He agreed to pay me over time in payments. I received $100 and then the payments stopped. Since then, the website has been running. There were some bugs
So I built a website (from scratch to finish) for a "friend's" coffee shop and we verbally (and through text messages) agreed on a price of $1200. He agreed to pay me over time in payments. I received $100 and then the payments stopped. Since then, the website has been running. There were some bugs which he told me to correct and I did. However, when the payments stopped, I did not continue fixing or updating anything. This happened about 2 years ago so I can no longer take him to small claims court. Could I potentially deduct the amount of $1100 as a business loss for the resources I used 2 years ago for the 2016 tax season? Or would I have to amend my 2015 tax return?
if you had a written contract with him for the amount and you claimed the income in the year of the contract, his failure to pay you all of it could be claimed as a bad debt, short term, on your current return
you have to have made efforts to collect this money, it is not something you simply claim without some effort to collect
if you did not claim the income when contracted, you have no loss, any loss would have occurred when you did not get the income and report it
A loss is when you used to have something and you don't have it anymore. If you never had it, that is not a loss.
If you reported the $1200 as "income", then you could deduct the amount that you didn't get as a loss.
If you did not report the $1200 as income, then you cannot deduct the money you didn't receive.
However, in either case, you can amend your 2015 tax to deduct most of the "resources" you used, such as electricity, supplies, etc. — but you cannot deduct your own labor or time under any circumstances.
No, it's not a loss unless you originally claimed the whole 1200 as income and paid tax on it. You don't claim it at all.
If you operate on a cash basis (you do, 99% certain) rather than accrual then you never paid tax on income you did not receive. Therefore, you cannot report this as a loss since that removes it from your taxable income, which it never was. Any resources you used should have already been claimed as an expense (cash basis again) but since you did not pay for your own time you cannot count that as an expense.
If you still have the text messages then that is your written contract, btw, although it has no signature like contracts usually require. Don't know how that would hold up in court. How much free coffee and comestibles does he owe you? (Sorry, off topic)
Or you could funnel……… that is, go back to the website itself and fix the issues and keep it running, but include an advertisement that pays you direct. In other words, get the website for this client up and running and working and being used, but you sell a banner ad space to a different client who pays you for the space instead of the website owner. Because you need to get the money as promised, and if the owner of the website won't pay, get the money from an ad space from someone who will pay. Pull out the original contract with website owner and the copy of the only check paid, and if website owner comes around saying hey — who is this other ad, tell them you needed to get paid your money as promised and if you couldn't get it from him, you would get it from another. If he wants the ad removed, he needs to pay you the promised amount and then be done with it. I think 2 years later is a fine time to get yours back. It's just a thought on turning the tables. Good luck with whatever you decide.
That isn't a loss, it's income you never got. You cannot deduct money you never received. You already didn't pay taxes on it.
All individuals and most small businesses file taxes on a cash basis. This means you simply report income and expenses when you actually receive or pay the money.
Using this cash method, you should have only reported the $100 he actually paid you in 2015 on your 2015 tax return. You basically get the "deduction" for the rest of the debt because you just don't report it as income which means you aren't paying tax on money you never collected.
If he does pay you later, then you will just report whatever he pays as income in the year he pays it.
If any of this information doesn't match what you actually filed on your 2015 taxes then you can file an amendment to correct the mistake. Expect the IRS to have a few questions and possibly ask for copies of your financial records if you suddenly file an amendment claiming that your business revenue was $1100 less than you originally reported.
Loss of income is never a deduction.
What "recourses" did you use? For tax purposes, your time as no value.