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.