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Does A Cash Overdraft Kill Tax Deductions?

October 18, 2019

Let’s assume for a moment that your checking account shows a negative balance.

And let’s also assume that you write checks on December 31.

This leads to an interesting question…

What’s the best way to report a negative cash balance in your checking account when you pay your S corporation tax-deductible expenses on December 31?

We’ll have an authoritative answer for you when you read my new article titled Q&A: Does a Cash Overdraft Kill Tax Deductions?

Three ways our fact-filled article can help you:

  1. We’ll tell you the good news. First of all, you’ll have to determine if the checks are honored. If they are, the monies are deductible. We’ll explain the IRS’s thinking when you read the full article.
  2. We’ll also tell you the bad news. If the checks are not paid because of insufficient funds, the courts will disallow the expenses. We’ll explain the court’s ruling in the relevant Vanney case when you read the full article.
  3. You’ll learn how to handle your S corporation’s balance sheet. In the S corporation balance sheet, use zero for cash and report the overdraft in the current liabilities section. Title it “cash overdraft” or “checks written in excess of cash balance.” You’ll get all the details when you read the full article.

Filed Under: Filing tips, Tax Planning

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