You are a business. Treat what you do as a business.

June --

I live overseas and I have been working as an independent consultant for three years. in May of 2009, I accepted a job as a subcontractor to a subcontractor (a research wing of a foreign university in Eastern Europe). The project was a disaster and the lead contractor has essentially hogged every cent and has not paid the subcontractor--very shady!

I am not getting paid. I have fought and continue to fight but without taking drastic more expensive actions, I think I'm just screwed. It is ill advised and expensive to go to court here and I don't want to make this battle so public in such a small place. I am owed 10,000 dollars, which is no small money for me, as the job ended early (I was originally expecting to earn 20,000 from it). Now I am getting 0 AND it cost me some money to actually do my work as an environmental consultant.

I don't want to go to court to resolve this, as it will cost me more money and time and this is a foreign court that is unpredictable.

My question is, can I deduct my losses (the $10,000 I was supposed to get paid) against the taxes owed on the $8000 in earned income for 2009.

I have a signed contract and stop work order I issued when it became clear I was going to be paid squat. What would I need for documentation to prove I'm not getting paid? . Also, now that everything has gone so sour, no one will issue anything in writing anymore so if I need a piece of paper that says, there's no way in heck you are getting paid, that might be difficult to obtain.

Secondly, how would I claim these losses--is there a particular US gov form for losses. Thirdly, how much more likely get audited will I be by deducting big losses against my measly 2009 earnings.

Lets say I finally and surprisingly get paid next year at some point--what would I do if i had already deducted in from my 2009 taxes.

Is this common for independent contractors to find themselves in such a position, where it is too expensive and hard to go to court and the Indie just comes to terms with not getting paid.

Dejected and Taken Advantage of Indie, Jennifer


Dear Jennifer, A Dejected and Taken Advantage of Indie,

I apologize for cutting so much from your email. I wanted to make it accessible to my readers because yours is not an uncommon situation. Many indies get stuck for the bill. I am sorry this happened to you and to so many others.

What you don't want to hear is that you allowed yourself to be taken advantage of. If it were a $1000 job I could understand your doing the work before getting paid. But $20,000!! And doing $10,000 worth of work with no payment. In all that paperwork that you have you should have included a payment schedule. Something like: 1/4 of the work done, get paid 1/4 of the money. No more work until you get paid.

So, it happened to you once. Don't let it happen again. You are a business. Treat what you do as a business.

And the other thing you don't want to hear. You are a cash basis taxpayer -- explained in these posts -- so you can do nothing with the loss. You cannot deduct it. You may deduct any expenses that you incurred.

Best,
June