Solved: Business income for which year?
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easyxpress
Level 3

Business income for which year?

Just want to get confirmation on this.

 

For my service in 2020, I will be receiving a payment in 2021 (before March 15) from a Trust, as the payment is based on a % of the prior year's profitability.  The Trust is treating this as an expense for 2020.

 

However, I'm using the cash method of accounting.  I'm wondering this is a 2021 income for me or 2020 income? What's the catch if any?

1 Best answer

Accepted Solutions
Mike9241
Level 6

Business income for which year?

"will be getting a check" would seem to indicate the check was not written until 2021 so the trust is not entitled to a deduction until 2021.  even if the trust uses the accrual basis for reporting, highly unlikely,  the tax rules for related parties and other tax rules would prevent the trust from deducting the fee until the check was written. if the check was written in 2020 then since you have full control over the trust it would be taxable to you in 2020

 

 

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4 Replies
martinmarks1919
Level 8

Business income for which year?

What are you to the trust? A beneficiary, a trustee, an employee...........something else? The problem is if the trust sends you a 1099 with the year 2020 on it....you're going to get question by the feds if you don't report it on your 2020 return. If you get paid and it's on a K-1 you have to report it on your 2020 return no question. Whatever you do make a copy of the check.

easyxpress
Level 3

Business income for which year?

I'm the trustee to the Trust, I am getting the trustee fee. Since the Trust is not a business, I won't get the 1099-MISC nor I get a K1.  Basically, I will get a check and that's about it.  The Trust is reporting this trustee fee (as expense) for 2020 in their form to IRS.  From your answer, it seems have to include the trustee fee for 2020 even I actually received the check in 2021 with cash method of accounting. Please confirm.

Mike9241
Level 6

Business income for which year?

"will be getting a check" would seem to indicate the check was not written until 2021 so the trust is not entitled to a deduction until 2021.  even if the trust uses the accrual basis for reporting, highly unlikely,  the tax rules for related parties and other tax rules would prevent the trust from deducting the fee until the check was written. if the check was written in 2020 then since you have full control over the trust it would be taxable to you in 2020

 

 

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Irene2805
Expert Alumni

Business income for which year?

I agree with Mike9241.  More than likely the trust is on a cash basis (not accrual), so they can take the deduction when the payment is made--2021.  You are also on a cash basis and should report the income when received (also 2021), even if the trust is on an accrual basis.

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