I had painted a porch for a neighbor several months ago, in my mobile-home park. At one point I leaned against a wooden post bolted to the porch, and weakened the connection.
Yesterday I rented an electric drill and bored a hole so I could fasten the post with another bolt. The customer did not pay me for this work; I inferred from what she said–she’s 85 and nearly blind 
--that I had caused the damage and I must take the loss. (She will be moving soon and has already put out a “FOR SALE”: sign.)
Fine and dandy. But, since I should be able to deduct the rental fee for the drill from my gross income for the year, should I also deduct the cost of my labor, reckoned on the basis of what I would have charged the customer for the work had I not been at fault for the damaged post?
To make sure I’m clear, you were paid to paint this woman’s porch, but in the process of painting you damaged a post which you then repaired at no additional charge? I’d say you could definitely deduct the drill rental as a business expense, but deducting the amount you would have been paid if you hadn’t caused the damage seems pretty shaky to me. Not getting paid is not really a business expense. By that logic, you could also deduct the difference between what you think you should get paid and what you actually get paid for your work, e.g. “since I try to charge $20/hour for my work, taking that job for $10/hour cost me $10/hour in lost income”. That’s not an expense.
OK, I see what you mean.