For cash-based taxpayers, income is not reported until received. Since the income was never reported – there is nothing to deduct.
It is different for accrual-basis taxpayers. Those taxpayers typically report income when an invoice is issued, meaning that they have reported the unpaid bill as income. If a client invoice remains unpaid it can be written off as bad debt expense.
In either case there is no “extra” deduction for not getting paid. This is true even if it’s for time that you can value. For example if you bill at $200 per hour and you worked three hours for the client – the resulting $600 is not deductible.
However, your related out-of-pocket expenses and wages remain deductible. The $0 income less actual expenses will net out to a tax loss. And that is the tax deduction to ease the pain of a client not paying you.
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