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DAH83
Level 1

Non-taxable garnishment payments

We had to evict a tenant at our rental property. The court awarded us to be repaid via garnishment from the ex-tenant. We were told this is non-taxable income. Do I leave the tenant's old invoices open in QuickBooks, void or delete them, or apply payment towards them when the checks come in? 

 

I think I should create an income account that is non-taxable, so my accountant and I don't forget, and just add it in the bank feed as such. BUT I don't know if voiding/deleting the original overdue invoices will put me in hot water later on. Is that why it's non-taxable, because we're already being taxed from what was supposed to be paid (accrual basis)?

 

I'd like to clean up my invoice section so I don't see all that overdue amount in there. 

2 Comments 2
IamjuViel
QuickBooks Team

Non-taxable garnishment payments

Hello there, @DAH83.

 

Deciding whether to delete or void your tenant's unpaid invoice or apply the garnishment as payments depend if it needs to be paid by the ex-tenant. Let me share some information on how it works.

 

Since you're awarded by the court to be repaid using garnishments, there's no need to delete nor void the unpaid invoice. Also, you're on the right track in creating a non-taxable income account and use it in paying the old invoice. I'd recommend consulting your accountant so you'd be guided properly in tracking your invoice payments. 

 

If the invoice will not be paid, you can either void the unpaid invoice so that you'll not be taxed. Otherwise, you can leave it as is and just record a bad debt and write it off.

 

Here's how:

  1. Check your aging accounts receivable

  2. Create a bad debts expense account

  3. Create a bad debt item

  4. Create a credit memo for the bad debt

  5. Apply the credit memo to the invoice

  6. Run a bad debts report

You can read through this article for more detailed instructions: Write off bad debt in QuickBooks Online.

 

Get back to us here if you have other questions about managing your invoices and their payments. I'm always here to help.

IamjuViel
QuickBooks Team

Non-taxable garnishment payments

I'm back to make sure everything is working fine, @DAH83.

 

Did the information I've provided answers your query about managing your old unpaid tenant invoices? Were you able to clear your former tenant's outstanding balance? If you need further assistance with the process, just leave a comment below. I'll be sure to get back to you.

Wishing you continued success.

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