Accounts Reconciliation Blog

There are times when businesses are entitled to a bad debt deduction. In case a customer does not pay your invoice, that bad debt may or may not be deductible depending on several factors. If your business is into selling goods, you can typically deduct the cost of goods you sell but are not paid for as bad debt.

However, before claiming write-offs of accounts payable, the IRS requires that companies take reasonable steps first to collect payment. These include giving the debtor written warnings or enlisting the help of a collection agency or small claims court. A bad debt deduction can only be taken in the year the debt becomes totally worthless.