Too Cute?

220/221

Senior Member
I always figured that it is income whenever I get the check. Not when it is cashed or deposited. Let us know what ypur accountant says.
I believe sometimes it is income even if you don't have a check.

For example, if you get a deposit on a job, the balance is recorded as income (recievables) right away.

But, yeah, ask your accountant :happyyes:
 

kwired

Electron manager
I believe sometimes it is income even if you don't have a check.

For example, if you get a deposit on a job, the balance is recorded as income (recievables) right away.

But, yeah, ask your accountant :happyyes:
How do you get a deposit on a job without also getting a check or other form of payment:?

Last I knew, IOU notes are not considered as payment:happyyes:
 

BullsnPyrs

Senior Member
If they are going to 1099 you cash the checks now. If you do not report the 1099 income on this years return you are creating a potential audit flag for your friendly IRS agent.
 

kwired

Electron manager
If they are going to 1099 you cash the checks now. If you do not report the 1099 income on this years return you are creating a potential audit flag for your friendly IRS agent.
1099's are to keep some guys from not reporting income. I always have a lot more income than what 1099's I do receive total to. Maybe I should only report anything I receive a 1099 for:thumbsup:
 
You should consult your own tax expert on this. Getting tax information from a forum can cause you much grief later.

I can say that I have done the delayed check deposit thing a long time ago for just the reasons you have. It was flagged by the IRS because of the 1099 and I had to write a letter to them explaining why I had not shown the income. I claimed it the next year and I never heard back from them so I guess it was okay. I don't think it was worth the trouble though and never did it again.
 

kwired

Electron manager
You should consult your own tax expert on this. Getting tax information from a forum can cause you much grief later.

I can say that I have done the delayed check deposit thing a long time ago for just the reasons you have. It was flagged by the IRS because of the 1099 and I had to write a letter to them explaining why I had not shown the income. I claimed it the next year and I never heard back from them so I guess it was okay. I don't think it was worth the trouble though and never did it again.
I understand your first statement about talking to a tax expert.

Just for conversation sake, unless the 1099 you are talking about was for a major portion of your income or you received a 1099 or W-2 or whatever for all of your income - how does it flag the IRS?

Like I said before I recieve a lot of payments every year that I don't get a 1099 for. How would the IRS know that I did not report income from a particular 1099 You will get 1099's from businesses, especially larger businesses, you will almost never get 1099's from homeowners. If you do a lot of work for homeowners and get a $1000 1099 from some business, how are they to know if that 1099 amount was included in the rest of the income you reported?

Unless my my reported income is way off because the 1099 in question was large compared to the rest of my reported income, they will not know.

If customer mails me a check on Dec 31 and I don't receive it until Jan 2 or 3 it is next years receipts whether I get a 1099 or not. That is how cash method accounting works.
 

Strife

Senior Member
Well...
As far as IRS is concerned the revenue is in when you billed, not when the cash came in.
And if you show the billing for next year, it'll probably affect your customer books as in their case the cost gets in when the bill is entered (again no matter when they pay it).
There's many other things you can keep in mind, let's say you pay march through december for vehicle insurance (most companies charge 10 months then you have 2 free months). So let's say is 2400 for the year, but you paid it all this year. Keep in mind 400 dollars are actual cost of next year.
To a homeowner it probably won't matter, but you still have to show the billing for next year.
You can buy some material, but if it's not used, you're supposed to give an accurate estimate of stocked materials. And if let's say you have 10K in inventory in the beginning of the year and now you have 20K , the 10K extra will be considered profit. Why? because you deduct it when you enter the bill from the supply house.
for instance:
revenues: 100K
paid materials : 30K
profit = 70K
but let's say you still got 5K of that material, it means your profit is actually 75K

My first year in business and i have a question. Right now I have a few checks on my desk from commercial customers. Not small 1-2 man companies. They are both software companies that own their own building- so they have lots of money coming in and out every month. I was thinking of holding onto these checks and cashing them in January.
Is this a bad practice and disruptive to their book-keeping? Both are great customers. The amount is small to them but can make a difference to a one man show like me If I can wait to pay taxes on it for another 15 months.
On monday I am finishing a job for a homeowner and should get a check for $3500. I was thinking of bringing it up to them. "Do you mind If I cash this check next year? It would help with my taxes." I hate to do something like that to a homeowner near Christmas so I would ask them first.
What do other companies do as far as far as year end buying? Buy material in bulk? Pay for advertising for next year?
 

Strife

Senior Member
Actually the income is when you make the invoice if you're on an accrual basis.
If you're on a cash basis, I guess is when you get the check, but I fail to see why would anyone work on cash.
I have bad customers every year, right now I have about 60K I can write off from the last 6 years, so why would I lose that 60K from a cash basis?

I always figured that it is income whenever I get the check. Not when it is cashed or deposited. Let us know what ypur accountant says.
 

kwired

Electron manager
Actually the income is when you make the invoice if you're on an accrual basis.
If you're on a cash basis, I guess is when you get the check, but I fail to see why would anyone work on cash.
I have bad customers every year, right now I have about 60K I can write off from the last 6 years, so why would I lose that 60K from a cash basis?
With cash based accounting you did not lose income if a customer fails to pay you, you just did not recieve that income. You still incurred any expenses related to the job - if you paid the expenses.

With accrual based accounting you report income when you invoice the customer. If the customer fails to pay you you can write it off but it is not an expense until you actually create the transaction that does so. If you write it off three years after the invoice date it is expensed the day it is written off, not on the invoice date.

With either method, if you have left over inventory after a project that inventory is not income or expense - it is an asset. It is equal to its purchase value until you do sell it - then it is expensed as cost of goods and anything above purchase value is income.

Nice thing about accounting software is you only enter what you bought, what you sold, and when. The software takes care of the rest for you.
 
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Fulthrotl

~~Please excuse the mess. Sig under construction~~
yes they are both going to 1099 me. Does that mean it goes on this year even if I cash it in January. Time to email my accountant.
yes, it does. count on it. when they issue the check determines what year's 1099 they put it on.
 

kwired

Electron manager
The other part that may work against you with cash based accounting is if you hold the check until the next year, your cost of goods sold may not be expensed either until you record the receipt of payment, so holding on to the check doesn't always make as big of an impact as you might expect to your income statement.

Same goes for paying your supplier on last day of year. If the supplies you bought are just going to inventory they are not an expense and will not increase your expenses for the year one cent, they are only expensed once they are sold. Until they are sold they are inventory assets.
 
Just for conversation sake, unless the 1099 you are talking about was for a major portion of your income or you received a 1099 or W-2 or whatever for all of your income - how does it flag the IRS?
I'm not sure without going back and looking but I would guess that my 1099 income for the year was probably more than what I reported for the year.
 

kwired

Electron manager
I'm not sure without going back and looking but I would guess that my 1099 income for the year was probably more than what I reported for the year.
That would probably provoke the IRS into checking it out. After all someone said they paid you something by submitted a 1099. That does not mean the 1099 amount is totally income, that is just what the submitter of the 1099 paid to you. You can deduct your operation expenses to come up with a net income.


I can see this easily happening for those who are employed as well as taking on side work. If you don't report your earnings from your side work you may get away with not paying taxes on it, but if someone sends you a 1099 you better include it as income in some way when you do your taxes, or they may be contacting you.
 

sd4524

Senior Member
Just talked with my accountant for about an hour. "cash the checks in January"
I wont bore you with the details.
 

kwired

Electron manager
Just talked with my accountant for about an hour. "cash the checks in January"
I wont bore you with the details.
I will hold on to them for you until then. Just endorse them before you send them to me.

Trust me they will not get lost.:happyyes:
 

petersonra

Senior Member
And trying to claim tax's next year on work you did this year could possibly be considered Tax fraud in IRS's eyes
IIRC, you can claim the income either when you collect or when you bill (there may be other options as well). But it has to be done the same way for IRS purposes on all projects.
 

kwired

Electron manager
IIRC, you can claim the income either when you collect or when you bill (there may be other options as well). But it has to be done the same way for IRS purposes on all projects.
When you collect is cash based accounting, when you bill is accrual based accounting. You have to use one method or the other. If you were to change methods you would basically need to close your books, make necessary adjustments when closing and start over with the new system. It would be a little like closing your business and then reopening under new ownership. If you actually are changing ownership or organizational status then it is a great time to switch methods if you feel the need to make that change.
 
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