Solved: I received payment in 2018 for work in 2017 in another state. I will file a Non-Resident return, but how do I allocate the expenses and income in different years?
cancel
Showing results for 
Search instead for 
Did you mean: 
Highlighted
New Member

I received payment in 2018 for work in 2017 in another state. I will file a Non-Resident return, but how do I allocate the expenses and income in different years?

I am self-employed and traveled to another state for work in 2017.  I incurred work and travel expenses in 2017 for this work.  I received payment in 2018 and will receive a 1099-MIS.   I will file a non-resident return, but can I allocate the expenses in 2017 against the income in 2018?  Or am I not going to deduct the expenses that help generate this income?


1 Best answer

Accepted Solutions
Highlighted
Employee Tax Expert

I received payment in 2018 for work in 2017 in another state. I will file a Non-Resident return, but how do I allocate the expenses and income in different years?

It depends.  Most self-employed taxpayers use the cash basis method of accounting:  income is reported when you receive it, and expenses occur when paid.  Certain expenses (like mileage and per diem deductions) are considered paid when incurred because of the deduction method involved.  If you use the cash-basis method of accounting, then you will be allowed to claim your expenses in 2017, and then the income in 2018.  

This will work out on your state return for that particular state.  Usually, each state uses an allocation method to determine state tax from a nonresident self-employed individual.  The method is:  divide the gross state self-employment earnings by the total amount of gross self-employment earning from the year, and then multiply this percentage against the total net self employment income to determine the self-employment allocated to that state.  (Your home state will also be taxing this same figure, but will provide a credit for the amount of tax you pay to the nonresident state for this income).  

If the only income you received from the state is reported in 2018, then you will have a slight bit more of income to that state in 2018 because you must deduct your expenses when paid, which was 2017.  On the other hand, if you have income for this state in both years, then you will see a reduced amount reported to the state in 2017 and a correspondingly larger amount reported to the state in 2018.  Either way, the amounts work themselves out correctly.


On the other hand, if you do use the accrual method of accounting, you might be able to claim everything in 2017.  The accrual method bases income and expenses when incurred versus when paid.  The reason why most do not use the accrual method is because it is more difficult to account for bad debt.  With the cash method, if you are never paid, then you never include the amount in income, but you claim all of the expenses related to it.  With the accrual method, you must claim a bad debt deduction in the future when you have claimed the amount in income for when you earned the income, and when the income to you becomes declared unrecoverable.  But, if you do use the accrual method, then you can claim both the earning and the expense in 2017 although you will not receive the 1099-MISC until 2019 (for tax year 2018).

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

1 Reply
Highlighted
Employee Tax Expert

I received payment in 2018 for work in 2017 in another state. I will file a Non-Resident return, but how do I allocate the expenses and income in different years?

It depends.  Most self-employed taxpayers use the cash basis method of accounting:  income is reported when you receive it, and expenses occur when paid.  Certain expenses (like mileage and per diem deductions) are considered paid when incurred because of the deduction method involved.  If you use the cash-basis method of accounting, then you will be allowed to claim your expenses in 2017, and then the income in 2018.  

This will work out on your state return for that particular state.  Usually, each state uses an allocation method to determine state tax from a nonresident self-employed individual.  The method is:  divide the gross state self-employment earnings by the total amount of gross self-employment earning from the year, and then multiply this percentage against the total net self employment income to determine the self-employment allocated to that state.  (Your home state will also be taxing this same figure, but will provide a credit for the amount of tax you pay to the nonresident state for this income).  

If the only income you received from the state is reported in 2018, then you will have a slight bit more of income to that state in 2018 because you must deduct your expenses when paid, which was 2017.  On the other hand, if you have income for this state in both years, then you will see a reduced amount reported to the state in 2017 and a correspondingly larger amount reported to the state in 2018.  Either way, the amounts work themselves out correctly.


On the other hand, if you do use the accrual method of accounting, you might be able to claim everything in 2017.  The accrual method bases income and expenses when incurred versus when paid.  The reason why most do not use the accrual method is because it is more difficult to account for bad debt.  With the cash method, if you are never paid, then you never include the amount in income, but you claim all of the expenses related to it.  With the accrual method, you must claim a bad debt deduction in the future when you have claimed the amount in income for when you earned the income, and when the income to you becomes declared unrecoverable.  But, if you do use the accrual method, then you can claim both the earning and the expense in 2017 although you will not receive the 1099-MISC until 2019 (for tax year 2018).

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

Privacy Settings