My understanding is that GAAP uses the allowance method but for tax purposes it can't be deducted until it is fully written off. I would think you could just take the total of amounts removed from AR and the allowance account minus any recoveries but I found this site that shows the input info for the software and it wants both bad debt expense per books and write offs for the year. I don't understand why all this info is needed and I don't have access to the software to test it out so I feel like I am missing something. I'll put he link below. Its at the bottom of the page. Am I missing something or would my way work? How do others do it? Thanks
https://www.thomsonreuters.com/en-us/help/checkpoint-tools/1120s-returns/bad_debt_expense
How to go from GAAP bad debt expense to tax?
byu/Working_On_Tax_Stuff intax
Posted by Working_On_Tax_Stuff
2 Comments
As the manager at your CPA firm where you’re working to show this to you.
GAAP reserve is non deductible add back or deduct the change in balance of the reserve each year. Say deserve is 0 at BOY and at EOY it’s 100, then you have an add back of 100 for tax purposes. Year two the reserve goes to 120, and then you have back of 20 in year two.