One more scenerio. You are self-employed. You have a contract to play a restaurant gig which requires you to buy a piece of gear...say an extra long, heavy duty extension cord. You buy it. The restaurant calls and cancels the gig.

1. Can you claim the lost wages from not performing. Nope.

2. Can you claim the expense of the extension cord. Sure.

Years...light years ago...I played a gig and got stiffed. I did the work. I didn't get paid. My tax guy said I could not claim a monetary loss as a deduction because I didn't lose any cash already in my possession.

I could sue in small claims...but only the legal costs would be deductible as a business expense...not the lost wages. And, if I would have been lucky enough to get the judgment and cash from the client, then the income would be taxable less the legal costs.

Make sense?

Eddie