. If you do a bunch of inspections between Christmas and New Year’s Day, you might just want to hold the checks and deposit them on January 1, 2025 to defer income into 2025.
I know you’re not a tax professional(and this is not tax advice), but I’ve just scheduled two inspections, one on the 29th, one on the 30th. These are paid through credit card and one or both won’t clear into my bank account until January. I’m just curious if that counts, or is it the transaction that matters. i.e. the “sale” was on the 30, the payment was on the 2nd.
The previous years, I think my phone was broken after December 17th. 
I think it depends on your accounting method:
- Cash basis
Records revenue when it’s received and expenses when they’re paid. Cash basis taxpayers report income when they receive it and expenses when they pay them.
- Accrual basis
Records revenue when it’s earned and expenses when they’re incurred, regardless of when cash is received or paid. Accrual basis taxpayers compute income when they earn it or become entitled to it.
Yeah, I know that one, it’s just always a gray area to me. If they send me a tax document that says they paid me in 2024, I’d have to square that circle I guess.
I am not a tax professional and this is my opinion only and should not be construed as tax advice
I would claim the income in 2024 in your situation. Let’s say your customer is a business and intends to issue you a 1099. That 1099 will be dated 2024. Therefore, the IRS would expect you to claim that income in 2024. There is a way to push the income into 2025 if desirable, but if you don’t have a reason to do that, it’s not worth the hassle.
If you are on a cash basis (which almost all of us are) you count money when it enters your account.
All good informtiom.
Make sure you account or CPA has your best interst at heart. You could loose thousands.
If only it were so simple.
Again, not a tax professional, so only my opinion, and not to be construed as tax advice. But, using Cash Basis accounting, if I make a big purchase on Jan 31st 2024, using my credit card, I’m going to throw the receipt for that purchase into my 2024 tax box. That means I’m going to deduct that expense in 2024. I am not going to move the expense to 2025 just because it didn’t make it through the clearinghouse until 2025.
I see it the same way for revenue. If my client paid me in 2024, but it didn’t get through the clearinghouse until 2025, that is still 2024 revenue.
I could be way off base, as I said, I’m not an accountant. But as I said in my earlier example, what if the client is a business and issues me a 1099 for their purchase, which they paid for in 2024? If I want to move that 2024 1099 income to 2025, I’m going to need to attach an explanation to my tax return, which opens up some new cans of worms, more work, and may make it impossible to e-file.
Correct. Again, expenses are deducted in the year you make them. Income is counted in the year it arrives (not when your client pays your invoice and mails it to you).
It’s that simple. You count an expense when you incur it (write a check, pay with a credit card, or hand someone cash) and you count income when you receive it, not when you invoice for it.
Nope. No explanation required. Dates on 1099s represent when something was paid, not when the income was received. If on a cash basis (likely) and you got it, or didn’t process and deposit it until after the new year, it’s income to you in the new year.
Your customer is going to file the 1099 with the IRS for 2024. The IRS is going to expect to see you report that income in 2024.
I don’t think that’s true, or I’m misunderstanding you. If I receive a check in November, I cannot simply sit on it until Jan to move the income to the next year.
"Example:
A customer pays you with a check on December 30, you have constructively received the money and must count it as income in that year, even if you don’t cash the check or deposit it into your bank account until sometime in January of the next year."
First of all I’ll make the claim that I am not an accountant and I’m actually kind of tax ignorant. That said:
This idea to hold checks for the last few days of a year to push that income into next year has never made any sense to me at all. You still have to count the income. Your just waiting 364 days to do it. Here’s how I see it:
The last couple days of the year you do 4 inspections. Lets say they’re $450 plus a $150 Sewer Scope. So we’re talking about a total of $2600.00 of revenue.
You’ll pay your sewer scope sub 100 each and you’ll book that expense ($400) for this year without the income. But you’ve postponed $2600 of income until next year. that you’ll be taxed on (without the $400 deduction to offset some of that income). That doesn’t seem to move any needle except that date that you pay the tax that you’ll eventually pay no matter what. It seems that this just kicks a relatively small portion of your tax bill to next year.
My question is: where does this strategy actually SAVE you anything on your taxes?
Side note: My wife works for a BFA (Big F*n Airline) Her payroll on the 31st of every month for the 1st 11 months of each year. The Dec 31st payroll is always delayed to the 1st of January every year. It’s intentional and they send out email reminders to adjust any auto payments that you have, etc… I’ve never understood that. What does that actually do for corporate profits except for the first year that they ever did it I suppose they can show less payroll (by one pay period). But each successive year they have to show three payrolls in January alone for a total of 24 payrolls for each year anyway.
It depends. I run 14 different companies. Some companies will have large profits this year, so we are delaying invoicing and buying stuff in December that we normally wouldn’t buy until next year to minimize those profits and the taxes on those profits. Some companies will have losses this year, so we are doing the reverse. We don’t need any more deductions this year but might be able to use them next year, so we are holding off buying stuff until January and pushing those expenses into next year.
But you won’t pay taxes on that income if you defer it into a year where you don’t have profit. Imagine a coin. If you don’t flip it, you owe the taxes now. But if you wait till next year to flip the coin perhaps you avoid those taxes altogether. Deferring taxes is equivalent to a free bet as opposed to a sure cost.
This is why you get a bunch of invoices in the beginning of January. Some of those companies were intentionally slow at getting out their year-end billing. They are, in essence, deferring income.
But you can in late December. That’s why I titled the article ("Year end tax tips). Several of the companies I run aren’t even open (from the weekend before Christmas until January 2). If I don’t go to the post office and process checks that came in until next year, it isn’t income for this year.
If you are on a cash basis, that is incorrect. You have not received the money till you do. A check in the mail is not income in the year it is dated, the year it was postmarked, or the time it spent in the mail. It isn’t income until you get it.
The reverse is true for the company that cut the check. It’s a deduction for the year of the date on the check. The company paying the invoice need not wait for the receiver to cash that check to determine when it is expensed. It is expensed when the check was written, not received
Nope. If you are on a cash basis (likely) a 1099 is not income. Income is income. And it is declared in the year the income was received.
I disagree. Just because you did not do something, does not mean you could not have done it. It is the principle of constructive receipt. Otherwise, let’s say I knew my tax rate would be lower next year. I could just “not go to the post office” this whole year.
The constructive receipt doctrine is based on the case of Davis v. Commissioner, where the plaintiff, Beatrice Davis, received a high-value check from her former employer on December 31, 1974. Because the plaintiff was not at home when the post office attempted to deliver the check, she was unable to collect it until the following tax year and did not include it in her 1974 taxes. The Tax Court ruled that Davis had “constructively received” the check in 1974 and therefore had to include the income in her 1974 income tax return.