[net.taxes] deferred income?

koomen@rochester.UUCP (Hans Koomen) (12/06/83)

From: Hans.Koomen
Just recently I finally received a check for some consulting I did over
the summer. As I can well afford to wait another month at this point, I
was wondering whether I could wait with cashing this non-trivial amount
until January and consider it 1984 income, instead of adding it to this
year's income?  What exactly determines the income date? The date the
services were rendered? The check was written? received? cashed?
FYI, I do file Schedule C (private business). 

-- Hans  ( Koomen@Rochester  or  ...!seismo!rochester!koomen )

jlw@ariel.UUCP (12/07/83)

Sorry, if you have the check in your hands,
its already too late.  The date you cash it doesn't
make any difference.  I believe, and here I may
be wrong because I don't have my Sylvia Porter
at the office, that even if you ask for payment
to be deferred to the new year from an employer
or client, and you have control over when the payment
is to be made, that the IRS can nail you for
income in the current year.



					Joseph L. Wood, III
					AT&T Information Systems
					Laboratories, Holmdel
					(201) 834-3759
					ariel!jlw

garys@bunkerb.UUCP (Gary Samuelson) (12/07/83)

----- News saved at Wed Dec  7 10:08:41 1983

The date income is considered to be received depends first on
whether you use the accrual or cash method.  'Accrual' means
that income is considered to be received as soon as it is
earned.  You do not have a cash asset, but you have an account
receivable, which is an asset.  As an asset, it can be sold to
(for example) a collection agency.  (That's just to demonstrate
that a receivable is an asset; not a recommendation.)  Conversely,
expenses are deemed to occur, under accrual methods, when the are
incurred.  For example, you order and receive something in December,
but you don't pay the bill till January.   Under accrual systems,
the expense occurred in December and is deductible for that year.
Under cash systems, the expense occurred in January and won't be
deductible until the next year.

Under cash systems, expenses and income occur when money changes
hands.  Income is deemed to occur when it is 'constructively
received', which essentially means that you now have control over
it.  When you receive a check, you have control over the funds
represented by the check; thus you have constructively received
it, and you can't defer the income simply by refusing to cash
the check until January.  You would have had to get your client
to keep the check until January.

One exception I can think of to the principle that receiving
a check is 'constructively receiving' income:  if you attempt
to cash the check, and it bounces, then you might be able to
argue that you had not received the income.

Gary Samuelson

cwa@ihuxm.UUCP (12/07/83)

I agree that once you have the check you have the income.
However, if you have the payment deferred over time then
it should not count as income until you receive the money
- or checks because they are really one in the same.  What 
could they possibly base your income on besides the time
at which you receive the money?  Is income based on the
time the work was completed?  I think not.  The huge sal-
aries that sports stars receive are sometimes paid over
time to provide a tax break as well as a secure future
income.

Carl W. Amport		Naperville, IL.		ihuxm!cwa

bcw@duke.UUCP (Bruce C. Wright) (12/08/83)

Deciding which year you received income depends on which method
you use for accounting purposes.  If you use the accrual system,
the income is considered to have been received when the service
(or good or ...) was rendered.  If you use the cash system (as
most small operations do), the income is considered to have been
received when you receive the cash or check or whatever method
of payment is agreed upon.  The time the check was cashed or any
payment-in-kind sold, etc.  is irrelevent.  If the amount is
large, and you do not anticipate similar income in succeeding
years, you may be better off with income averaging - this is
something which you will have to work out (or have your accountant
work out).

			Bruce C. Wright @ Duke University

rs55611@ihuxk.UUCP (12/08/83)

One of the few instances where income can be counted in the year it
was earned (ie., the year the work was done), instead of the year in which
the money was received, is in one "fine print" rule associated with
income averaging.  This rule works in favor of the individual, and allows
income averaging in some cases where you might not otherwise be eligible,
if a big chunk of this year's income is directly due to work done in
previous years.  One example would be a big royalty check received for
a book written in a previous year.  I won't attempt to outline all of
the stipulations, but it's in all of the federal publications talking
about income averaging eligibility.

Bob Schleicher
ihuxk!rs55611
Bell Labs, Naperville, Ill.