4 ms·

You are of course right. However, there are two aspects of "write off your loss". Mental one, and a legal one. Unfortunately in our jurisdiction (Serbia), as so

You are of course right. However, there are two aspects of "write off your loss". Mental one, and a legal one. Unfortunately in our jurisdiction (Serbia), as soon as your company issues an invoice, it's counted as realized income for tax purposes. I've just opened this can of worms, but apparently you can delay that on-paper income if payment is late, but in the end you might need to sue the other party and get court documents to prove they can't pay.

csomar 2y ago
Back then I only issued an invoice when the payment was made. My accountant tried to explain to me otherwise but it never made sense to me. Not getting paid and also having to pay taxes on that?
bruce511 2y ago
I obviously can't speak to Serbian tax law, but this rule (invoice =income) is applied universally. In my country if the invoice is not paid then that becomes a "bad debt", which in accounting terms is an expense (which in effect is then a tax credit.) There is sometimes a tax approach for very small companies where tax is calculated purely from invoice, and not from net-income, but there are typically benefits to that which outweigh the bad debts.
morpheuskafka 2y ago
I think you need to research the accounting rules for "bad debt" in your country. As for being taxed when the invoice was issued, that would be the same as in US and other countries too for all medium-large companies (although some small businesses would use "cash" accounting). I would be surprised if it was actually required to sue the other party--retailers, banks, etc. everywhere have millions in bad debt every year that is not sued because the amount is too small or there is no reason to believe the other side can pay the ordered amount. In fact, if you were a publicly traded company, you could get in trouble for not writing off bad debt because it makes the company look more successful than it really is. So there should definitely be a clear procedure for it.

csomar 2y ago

Back then I only issued an invoice when the payment was made. My accountant tried to explain to me otherwise but it never made sense to me. Not getting paid and also having to pay taxes on that?

bruce511 2y ago

I obviously can't speak to Serbian tax law, but this rule (invoice =income) is applied universally. In my country if the invoice is not paid then that becomes a "bad debt", which in accounting terms is an expense (which in effect is then a tax credit.) There is sometimes a tax approach for very small companies where tax is calculated purely from invoice, and not from net-income, but there are typically benefits to that which outweigh the bad debts.

morpheuskafka 2y ago

I think you need to research the accounting rules for "bad debt" in your country. As for being taxed when the invoice was issued, that would be the same as in US and other countries too for all medium-large companies (although some small businesses would use "cash" accounting). I would be surprised if it was actually required to sue the other party--retailers, banks, etc. everywhere have millions in bad debt every year that is not sued because the amount is too small or there is no reason to believe the other side can pay the ordered amount. In fact, if you were a publicly traded company, you could get in trouble for not writing off bad debt because it makes the company look more successful than it really is. So there should definitely be a clear procedure for it.