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?
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.
Here are a few articles that explain cash accounting and accrual accounting: http://fbc.ca/search/node/%22cash%20accounting%22
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.
You should report the partial cash payment and deduct the remainder as a loss.