If someone owes you money you cannot collect, you have a bad debt. A business bad debt, generally, is one that comes from operating your business. A business can deduct its bad debts from gross income when figuring its taxable income. Business bad debts may be deducted in part or in full. Non-business bad debts must be totally worthless to be deductible – you cannot deduct a partially worthless non-business bad debt.
If you sell your services, you cannot deduct an unpaid bill as a bad debt. If your business provides goods, however, which all our readers do, then you can deduct the costs of any goods sold that have not been paid for as an ordinary business expense.
What happens when someone owes your business money, there is a slight chance of recovery, and you consider it a “partially worthless” bad debt?
According to the IRS, it is permissible to deduct a business bad debt that becomes partly uncollectible. It is up to you to decide how much to “write off” on your books as uncollectible. Your tax deduction is limited to that amount for the year. You do not have to charge off and deduct your partly worthless debts each year. You can wait, and delay a write off until a later year. You cannot, however, delay deducting any part of a debt after the year it becomes totally worthless. For example, you discover that an account receivable is worthless in 2003 because the person who owes you the money has: a) died penniless; or b) has filed for bankruptcy. In this case, you must deduct the loss in 2003; you cannot delay the deduction until 2004.
Disabled Access Credit
Small businesses are entitled to a disabled access income tax credit for expenditures incurred to make a business accessible to disabled individuals. The amount of the credit is 50 percent of the amount of eligible access expenditures for a year that exceed $250 but that do not exceed $10,250. An eligible small business is any machine shop or any other business that elects to claim the disabled access credit and that either (1) had gross receipts (less returns and allowances) for the preceding tax year that did not exceed $1 million or (2) had no more than 30 full-time employees during the preceding tax year.
Examples of access expenditures that the IRS says will qualify for the disabled access income tax credit include expenditures: (1) for the purpose of removing architectural, communication, physical, or transportation barriers that prevent a business from being accessible to, or usable by, disabled individuals; (2) to provide qualified interpreters or other effective methods of making orally delivered materials available to hearing-impaired individuals; (3) to provide qualified readers, taped texts, and other effective methods of making visually delivered materials available to visually impaired individuals; (4) to acquire or modify equipment or devices for use by disabled individuals; or (5) to provide other similar services, modifications, materials, or equipment. Most of the examples provided by the IRS may not apply to you but some surely will.
For many businesses, installing a wheelchair ramp, special drinking fountain, etc., qualifies for claiming the Disabled Access Credit. In a recent case brought before the Tax Court, an optometrist who purchased special equipment that increased his ability to treat disabled patients claimed the Disabled Access Credit on his tax return. The Court allowed him to take a credit for the equipment, an automatic refractor that was also used by the optometrist to treat non-disabled patients. The Court noted that the fact that the special equipment that was purchased was also used by the taxpayer to treat non-disabled patients did not bar his entitlement to the disabled access tax credit. The point here is that eligibility for the Disabled Access Credit does not hinge on whether an item is for the exclusive use of the disabled. So if you purchase an item that will facilitate access to your place of business by the handicapped and non-handicapped as well, for example hand rails, such expenditures qualify for the credit.
Who’s Covered by ADA?
Can an employer be liable under the Americans with Disabilities Act (the “ADA”) for terminating an employee whose impairment is not a disability under the ADA?
The Third Circuit court recently cautioned that an employer may in fact be so liable.
In the Shellenberger case, Shellenberger pestered her employer for accommodations because of “perfume sensitivity.” The employer concluded that the employee did not have a covered disability under the ADA, but tried to address her concerns by moving her desk repeatedly, allowing her to keep a fan on her desk, and asking a supervisor whose perfume bothered her to discuss business matters over the telephone, rather than in person.
Despite the employer’s efforts, the employee made additional demands, such as being allowed to sniff each new employee, instituting a perfume-free work place and installing special air filtration equipment. The employee filed a charge with the EEOC, accusing the employer of trying to poison her. The employer concluded that it was unable to satisfy the employee’s demands and since the employee’s perfume sensitivity was not a disability covered by the ADA, the employer fired the employee for insubordination.
Well guess what? The Third Circuit court of appeals ruled that that the employer fired the employee in retaliation for actions protected by the ADA. The court concluded, “In determining whether a plaintiff can proceed on a retaliation claim, a person’s status as a ‘qualified individual with a disability’ under the ADA is not relevant in assessing the person’s claim for retaliation under the ADA.”
This case underscores the point that once a request for ADA accommodation is made, no matter how frivolous, any potential adverse actions taken against the employee must be carefully scrutinized to ensure that any adverse actions taken are not perceived as retaliatory.
Milton Zall is president of Zall Enterprises, an editorial consulting firm based in Silver Spring, MD. He writes on taxes, investments, technology, the Internet and HR/business issues. He is a Certified Internal Auditor and a Registered Investment Advisor. He can be reached via email at [email protected].