Collecting from deadbeat customers

gunbunny said
I'd include the $3500 + interest on the $40K with the filing. I think getting the judgment would be slam dunk. Especially if you have a contract with terms of payment. I think I would start with a letter from the attorney indicating your intention to file the suit if the debt is not satisfied. Most lawyers will do this for less than $100. I have found this to be pretty effective. The threat of losing a home can be quite motivating to most people. I'd get the ball rolling soon. If nothing else you will be able to write the loss off, but personally, I'd rather have 78% of something instead of 100% of nothing.

Yeah, I'll have a talk with my attorney about that.

I looked into writing it off, but since I use the cash method of accounting I don't record sales until I actually receive the cash so I wasn't able to write it off. I would have to record it as income which I can't do until it's paid.

From the IRS Publication 535:

You can claim a bad debt deduction only if the amount owed to you was previously included in gross income. This applies to amounts owed to you from all sources of taxable income, including sales, services, rents, and interest.

Cash method. If you use the cash method of accounting, generally, you report income when you receive payment. You cannot claim a bad debt deduction for amounts owed to you because you never included those amounts in income. For example, a cash basis architect cannot claim a bad debt deduction if a client fails to pay the bill because the architect's fee was never included in income.