How do you report partial payments on a cash accounting basis for income taxes?
So, I'm working with WaveApps.com which is based on accrual, but I'm running on cash basis. I ran into a question of, if I have a partial payment but I never get paid for the rest, when does it count as income on taxes?
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Apr 29, 2015
You should report the partial cash payment and deduct the remainder as a loss.
Apr 29, 2015
Adam, do you have a ownership stake in WaveApps.com? If not, the answer is straightforward.
If you report Income to the IRS on a cash basis you would record the income for the partial payment in the period you received the funds. If you do not receive the remaining payment, you do not have to record that income.
Apr 29, 2015
Here are a few articles that explain cash accounting and accrual accounting: http://fbc.ca/search/node/%22cash%20accounting%22
Apr 28, 2015
If you are on a cash accounting system and never got paid you don't count it. If you are on an accrual system it counts as income and you pay taxes on it. When you deem it uncollectable you write it off and have a credit to your income and your taxes will be less.
Apr 29, 2015
If you haven't asked your accountant about that you might want to. I don't think it works that way. You would record the $ 400.00 when you receive it. If you made a $ 1000.00 sale and it was paid at $ 250.00 a year for 4 years you would record the $ 250.00 each year for 4 years. With Accrual accounting the whole $ 1000.00 would be in the year the sale was first made.
Right, but what about partial payments, where I create an invoice for $1,400 and they pay $400 with a promise to pay the rest. Typically in cash basis, you don't have to pay taxes on partial payments because the payment hasnt been made in full yet but if it never gets paid, at what point do I pay taxes on the $400?