I had business income from 2019 at the end of the year but did not get paid until 2020. Can I still claim this income for 2019 return?

[oralialara]

Income included me paying others and my personal profit and the others were paid in 2019 after the event.

[ThomasM125 · Accepted solution]

Unless you are in the unique position of filing your taxes on an accrual basis, you should report the income in the year you receive it.

You choose the method of accounting for your business in the first year you file taxes for it. If you choose the accrual method, then you can report your income when billed and the same for your purchases and expenses. However, you would have to retain the same method of accounting for each year thereafter.

This could create issues since you may receive forms 1099-MISC reporting income in one year, while it shows up on your tax return in a different year. Also, you may end up paying tax on sales for which you haven't been paid for yet. So, it may create problems for you if you choose the accrual method of accounting for your business.

[oralialara]

Thank you for your response! It was very helpful! So, for clarification purpose, I will list what I paid my independent contractors in December on my 2019 return (I paid them before I got paid so they could have the money for the holidays) only and I will list my 1099 form which I received in January in my 2020 return as my income. Is that correct?

[DeanM15 · Accepted solution]

If your business is on a cash basis (as opposed to accrual basis) then you should report your income and expenses when you pay or receive them. 

So if you paid your employees to work at an event on Dec. 29th, 2019 and you did not get paid for the event until Jan 3rd, 2020, you would report your employee (and other) expenses paid in 2019 in 2019, and the income would be on your 2020 return.