What does the tax-shield number represent?

The tax-shield approximates the federal + state effective-tax benefit of writing off a partially or wholly worthless business bad debt under IRC §166 and California Rev. & Tax Code §24347. It uses the tax rate you enter.

How is expected collections recovery calculated?

Expected recovery = principal × probability of collection − 15% contingency fee − court costs (if filed) + expected interest and fees recovery. The tool uses your inputs for probability and stage probabilities.

Does the write-off path foreclose collection?

No. A creditor can write off for tax purposes and still pursue collection. Any later recovery is taxable as recovery of a prior deduction.

Bad-Debt Write-Off vs. Litigation Decision Calculator

Inputs

Outstanding principal ($)Face amount of the unpaid invoice(s).

Debt age (months since due date)Under 3 months tends to recover at higher rates.

Documentation strengthStrong paper raises recovery probability and shortens cycle time.

Debtor dispute status

Debtor solvency indicator

Personal guaranty in place?Boosts probability by adding a second source of recovery.

Attorney's-fee clause?

Contract interest rate (%)Defaults to §3289 legal rate (10%).

Combined effective tax rate (%)Federal + California. 29% is a typical C-corp combined rate; S-corps vary.

Estimated court filing & service costs ($)Limited civil filing + process service; LegalCollects advances these in most matters.

Methodology

The tool computes a base collection probability from debt age, then applies multiplicative adjustments for documentation, dispute status, solvency, and guaranty. Expected recovery is principal × adjusted probability, plus expected interest (§3287/§3289) and fees (§1717) if applicable, less 15% contingency and court costs. The write-off path is principal × effective tax rate. Use it as directional input, not a substitute for a case-specific assessment.

Attorney review required. This tool provides general educational estimates and does not constitute legal or tax advice. A California attorney and tax advisor should confirm §166 deductibility and litigation strategy for your specific facts.

Inputs

Methodology

Ready to pursue instead of write off?