llecs wrote:
I totally get PFDs being a goodwill gesture. I also see the point as accepting PFDs as going against the system. But if I am owed money by a debtor as a biz owner, my loyalty lies with me, not EQ, TU, EX, or the system. The money is more important than the integrity of the system, IMO.
Here's my theory why PFDs aren't commonplace:
I think the answer lies within IRS Form 1120, US Corp. Income Tax Return. Employees, on their paycheck, have taxes deducted first and are allowed to spend or save whatever is left over (net income). Bus. owners are taxed differently. We are told to spend as much money as we can, and then we are taxed on whatever is left over (on the profit).
On our P&L, there's a line item that can get used called "bad debts". Any debt that isn't paid is considered bad and therefore is an allowable expense. There's no taxes paid on it. Free money whether the debtor paid or not. In fact accepting a PFD may just be a paperwork headache because you have to make adjustments where adjustments are due. Unless there's a cash flow issue with the creditor, there's no reason they would accept, assuming this is the reason.
That might apply to OCs, but CAs and JDBs buy their debt portfolios for pennies on the dollar. Presumably, once an OC has written off a portion of a debt as uncollectable and taken the tax deduction for that, the CA can't do the same thing with the same debt, right?
If that's the case, by accepting payment in full (whether for PFD or not) they're actually making a profit of several hundred percent. Turning down that sort of profit just for the chance to write off a tiny piece of bad debt (the part that's left after the OC wrote off the rest) doesn't make good business sense.
