As a sole proprietor, I am receiving commission checks the last week of december 2006 and some I will receive the first week of January 2007 (but they were written and mailed the last week of December).
If I deposit all of them in January 2007, even though they were written and sent in 2006, does this income go on my 2006 or 2007 tax return?
2006-12-29 08:10:44 · 5 answers · asked by AVS 2 in Business & Finance ➔ Taxes ➔ United States
The rule is upon receipt, but there is a strange definition of receipt when the United States Post Office is involved. Just as the IRS considers your return to be received on time if you get it to the post office on the due date, you are considered to have received the check on the date it was mailed, not the date the post office delivers it.
2006-12-29 12:43:09 · answer #1 · answered by STEVEN F 7 · 0⤊ 0⤋
I'll split the answers and say upon receipt. It definitely is not when you deposit the monies. The issue is when did you have an unrestricted right to the funds. To me that would be upon receipt.
The dilemma is when a cash basis customer wants your bill to be an expense in 2006 so he mails you the check today. It is a cash basis deduction for him once he gives up any possession or right to the funds (not when it is deducted from his checking account). So having written you the check he puts that amount of money on on the 2006 Form 1099 saying to the IRS he paid you in 2006. Meanwhile the checks are floating around the US Postal Service and did not arrive at your doorstep until January 2. So is it income when mailed or received.?
If a material amount of money I would be researching this a lot more. In the interim save the envelopes and their postmark.
2006-12-29 10:05:23 · answer #2 · answered by zudmelrose 4 · 0⤊ 0⤋
If the checks are from customers for sales or services, and you are on a cash basis, it is income when deposited, UNLESS, you claim it as "Cash on hand" on your year end financial.
However, if you perform work as a sub-contractor and receive payment from a company, that company will/should send you
a 1099 for the year they wrote the check. The sale would be an account receivable at the end of the year and the profit at costout would be taxable for the year that the company issued the 1099, as a copy would go to the IRS for that year.
The key is if and when a customer may claim a deduction as an expense on their tax return. Their deduction will be searched and compared against your income for the same year.
Commissions will fall into this category if a 1099 is issued for 2006.
You will know from the receipt of 1099s for 2006. The law requires these to be in your hands by end of January. If you do not receive them, get them. There are penalties for not claiming income in the current year.
2006-12-29 08:38:14 · answer #3 · answered by ed 7 · 0⤊ 2⤋
Cash basis means when you have the "cash", not when it's mailed or promised. When you deposit it in your bank, it's income.
2006-12-29 09:15:43 · answer #4 · answered by Kevin K 3 · 0⤊ 3⤋
When you receive it. It does not matter whether you deposited it yet.
2006-12-29 08:14:55 · answer #5 · answered by Charles C 1 · 1⤊ 1⤋