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:
Check your aging accounts receivable
Create a bad debts expense account
Create a bad debt item
Create a credit memo for the bad debt
Apply the credit memo to the invoice
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.
