If you are accrual, it doesn't matter as the income was created when you prepared the invoice. If you are cash (check your tax return if you are not sure), then it would be 2013 if you received it in 2013 and 2014 if received in 2014. I hope you saved the envelope as it should have a date of mailing.
The sticky part is the 1099. Obviously they want to be able to report is as an 2013 expense. When that has happened to me, I just reported it as 2013 income as I don't have to file state tax returns until late January.
You will record it as income in 2014, if this is the cash basis accounting.
This is not my area but I would think if they paid you in 2013, they will 1099 and report the payment to the IRS in 2013. You need an answer from a CPA or enrolled agent.
I'm not a CPA but from what I remember about it - it depends on whether you are on accrual or cash based account (I.e., you count money when it is billed vs when it is received)
Hi Julian. The answer depends on whether accounting is being done on a 'cash basis' or an 'accrual basis'. As I understand it, for cash basis the date of the deposit would be the factor to consider, while accrual basis would be triggered by the date of the invoice. I hope this helps.
If it was for work you did in 2013, and the check says 2013, then it gets filed for 2013 taxes
Well as best practice one should have it posted at the time the cheque is being received and then reconciled with the bank statement to close and to have it as credited in bank later on in 2014.
In any case, your accounts will show your sales as income. So this payment from your client is a record for payment of the said sales income. Thus, your income in P&L have already been accounted for in sales as at 2013.
It depends on your revenue recognition policy.
Generally speaking if the work is done and completed in 2013, then revenue is booked in 2013, even though payment is collected in 2014. The amount is refleted as AR in your 2013 book. I hope this helps
If you use the cash basis, income is reported when you deposited it, and you would put it on your 2014 taxes.
If you use the accrual basis, income is reported based on when you did the service, so it would be in 2013 income.
Though, let's say you did 1/2 of the service in 2013 and 1/2 in 2014 and you use the accrual basis. You would then put 1/2 of the amount for 2013 and 1/2 for 2014. Likewise, if you had a 50% deposit that you deposited in 2013, and you deposited the balance in 2014 and you use the cash method, you would split it up to 1/2 for 2013 and 1/2 for 2014.
Julian - You are getting a lot of conflict the information and a lot of it is incorrect. If your business is on the accrual basis, then the date the services were rendered or sale occurred is the date you pick up the income.
If you are on the cash basis, you pick up the income when you have constructive receipt of it – when the check was delivered to you. So if it was delivered to you prior to January 1, it is income in December. If it was delivered to you after December 31, it's January income. However, if your client sent to you and he had a check available for you to pick up and you told him to just mail it, it could be argued that you have constructive receipt of it in December and its December income.
The answers you are getting to follow the 1099 are completely wrong. If the check is mailed on December 30 or 31st and not received until January, it will go on the 1099 for the payer in December, but will not be income for the recipient until January. Under most circumstances, your income will be higher than the 1099's you receive, so there will not be a matching problem with the IRS. If, however, this is not the case, then you pick up all the 1099 income as income on your schedule C and their record, as an expense, and adjustment described as income not received until the following year. This is a common practice and should not result in an IRS audit