You would elect the accrual method instead of the cash method of accounting. It is not up to the payer to adjust his books for how you wish to include the income. This only matters for the month of December.
You would make an adjustment to Schedule C to allocate money reported to your to another year.
Please see this answer from DDollar:
Your customer should not be calculating payments made to you on an accrual basis. Individuals must prepare their taxes on a cash basis. If your customer included payments not yet made to you as of 12/31/20, you have two choices:
- Contact your customer and request a corrected 1099. or
- Include the full amount reported on the 1099 as income and then deduct the amount not actually received as "Other Expenses".
If you choose the later of the two, be sure to include in your 2021 income the amount you exclude for 2020.
Unlike the cash method of accounting, which reports income when it's received, the accrual method reports income when it's earned, regardless of when payment is collected.
For example, if you installed tile for a customer in December of 2021 and got paid in January of 2022, you'd report the income for 2021 under the accrual method because that's when you performed the work. In contrast, if you were using the cash method, you'd report the income in 2022 because that's when you got paid.
Same goes with expenses—under the accrual method, expenses are deducted when you received the goods or services, not when you paid for them. So if you bought the tile on credit in 2021 but didn't pay the invoice until 2022, you'd deduct the cost of the tile in 2021, the year you received them.
Generally speaking, larger businesses use the accrual method, whereas smaller, "mom and pop" establishments use the cash method. If your business carries inventory and earned over $25 million in gross receipts in the prior three-year period, you'll generally use the accrual method for sales and related costs. However, for most small businesses, the cash method is simpler and makes more sense.
A business can use the accrual method for bookkeeping purposes and the cash method for tax purposes, but this is not common.
If you want to change your accounting method for tax purposes, file IRS Form 3115, Application for Change in Accounting Method (included in TurboTax Business).
