Question

14. This year William provided $7,200 of services to a large client on credit. Unfortunately, this client has recently encountered financial difficulties and has been unable to pay William for the services. Moreover, William does not expect to collect for his services. William has “written off” the account and would like to claim a deduction for tax purposes. What amount of deduction for bad debt expense can William claim this year if he uses the accrual method?

15.This year William provided $7,200 of services to a large client on credit. Unfortunately, this client has recently encountered financial difficulties and has been unable to pay William for the services. Moreover, William does not expect to collect for his services. William has “written off” the account and would like to claim a deduction for tax purposes. What amount of deduction for bad debt expense can William claim this year if he uses the cash method?

Answer 1

14.

Answer

$7,200 bad debt expense wiliam can claim this year. Under the accrual method, § 166 provides that william can claim a bad debt deduction for the account receivable if it is partially or completely uncollectible.

Because william does not expect to collect for his services and he has written off the receivable,he is allowed to deduct the full $7,200 of services that he has included in income under the accrual method.

15.

Answer

0 bad debt expense william can claim this year. Under the cash method, william would not be able to claim a bad debt expense deduction because, under this method he has not yet recognized the income for his services.