How do you handle clients that do not pay? Do you write it off in your taxes as a business loss? What about pro bono work? Do you consider that a donation?

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I’m not a CPA or tax lawyer, but I believe you can’t write off bad debt if you’re using cash method accounting.

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It would be unpaid work product. I don’t see how this is any different than a carpenter who makes a personalized piece that can’t be resold, and the customer bails, or takes it and doesn’t pay.

My accountant decides based on the year. It’s only happened to us once tho, 99.99% of clients pay.

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As attorneys, our product is time. We do not make trinkets to sell that can be stolen, destroyed, or donated. We spend our time, which has a definitive value, to address problems. So it only makes sense that when a client does not pay, or when we do pro bono work, it should be considered as a loss or a donation—and should be valued based on time spent and our hourly rate.

I’d previously been given the advice to not sue them, bc it will just turn into an ethics complaint or malpractice suit despite the lack of any ethics violations or professional negligence. I’ve heard of companies “writing off” bad debt as you suggest, but I haven’t done that yet so not sure if it counts as a deduction on income or if it’s just an adjustment in the books. Would love to learn more. Long winded way of saying I’m following this thread.

My firms tries to get them to pay through payment plans and occasionally price reductions. If they don't pay after we try that multiple times, then we send them to collections. I can see how it could backfire with bar complaints, but probably 95% or more end up paying, so we've only ever sent maybe 3 total to collections.

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